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A guide to Federal student loan consolidation

Federal loans for college, including Stafford, Perkins and PLUS loans, can be consolidated and a single repayment made each month. You can extend the repayment term to aid afford-ability. However, this will not affect the long-term cost of borrowing. There is no charge for college loan refinancing, but you will have to wait until you leave college before the process can begin.

How does Federal student loan consolidation work?

What are federal consolidation loans?
You agree to borrow money from a lender to repay all of your federal student loans, including Perkins, Stafford and PLUS loans. Rather than making multiple repayments each month, you will pay just one sum of money each month to your chosen lender. Who is able to perform student debt consolidation?
If you are a student, you can consolidate federal direct loans upon graduation. Consolidating college loans are not permitted while you are still studying. However, parents are permitted to consolidate PLUS loans at any time. Can married couples combine their student debt?
After the Congress passed the Higher Education Reconciliation Act of 2005, it was no longer possible for couples to combine their debts. The law was changed because it created problems when a couple separated. Do I have to choose a specific lender?
The Emergency Supplemental Appropriations Act of 2006 repealed the single holder rule. Students are now free to consolidate their debt with any lender.

How much interest will I pay?

Determining the rate of interest on a consolidation loan
You will need to calculate the weighted average based on the rate of interest you are paying on your loans. You will need to round this up to the nearest one eighth of a percent, but the maximum APR is capped at 8.25%. Calculating the APR when consolidating student debt
Let us assume that you have $10,000 of Perkins loan debt at 5% and $8,000 of Stafford loan debt at 6.8%. This equates to an average of 5.8% (or 5.875% when rounded up to the nearest one eighth of a percent). You can calculate this figure by working out how much interest will accrue in a single year and dividing this figure by the principal (amount you owe). Pros and cons of extending the repayment term
Repaying the debt over a longer period of time will mean that less of your disposable income goes towards servicing the repayment of college debt each month. However, the longer debt continues, the more debt interest will accrue.

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