Post education, US Student’s can look to consolidate their student loans into one single debt. The program of student loan consolidation was created in 1986 and is known as “The Federal Loan Consolidation Program.”
Consolidation loans allow ex-students far longer terms to repay debts. Terms can often be between ten to thirty years of repayment – subject to the financial situation and income levels of the students in question. Whilst it may look like a fairer way of repaying student loan debt as the monthly repayments are vastly reduced, ultimately the borrower will pay back a higher total amount over the term of the loan than previously required to do so.
A fixed interest rate is therefor applied to consolidated student loans, and this is calculated as a weighted average of the sum of the interest rates of the loans that are becoming consolidated. Weighting is given based on the amounts borrowed and the rates given to these amounts for each loan that is due for consolidation, and the overall rate will be capped at 8.25% regardless.
Several features unique to student loans are no longer applicable when the debts are collected into one consolidated loan. These include the lack of a grace period (the period of time allowed post graduation prior to the commencement of loan repayments), and any relative special forgiveness circumstances that may be granted from federal student loans. As a result of these issues, consolidation of student loans is not a practice that is universally preferred.
Post economic downturn in 2008, many loan consolidation programs in the United States were suspended, including major providers such as Sallie Mae and Nelnet.
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