Direct Student Loan Consolidation

The growing quantity of debt with which most students graduate college is a problem for more reasons than most realize. Although the crushing cost of servicing tens of thousands of dollars in indebtedness is the primary problem, the simple mechanics of paying on a large number of different small loans every month can also be a significant inconvenience. A direct student loan consolidation can either alleviate or eliminate both of these problems.

A federal direct consolidation loan is a way to take all of one’s federal students, whether subsidized or not, and roll them into one loan. In fact, just about every loan that is not a private, state government, PLATO, Primary Care, Law Access or Medical Assist loan can be included in a direct consolidation loan. Its primary benefit is a fixed interest rate which is the lower of the weighted average of all of the rates of all of the loans to be included in the consolidation, or 8.25 percent. Being able to lock in today’s low rates for the long term is a significant benefit.

Getting a direct student loan consolidation means that one has only one lender. Instead of writing multiple monthly checks to a number of different lenders for a number of different loans, one simply has to send one check to pay down the consolidation loan. With the convenience of a single check also comes the convenience of a fixed repayment term—one will be done with all of one’s loans at the same time. Furthermore, consolidating one’s loans is free with no charge being levied by the Department of Education for this service.

For those who would like to stretch out their payments to make them as low as possible, a direct consolidation loan can also be an excellent option. For those students who carry $60,000 in debt, repayment terms of 30 years are available. Given a 5.5% interest rate, the monthly payment on a 30-year repayment term would be only $340.67, instead of the $651.16 payment on a 10-year term. Direct consolidation loans offer a vast range of repayment options including long-term payment, graduated payment schemes, and income sensitive schemes where one can even avoid paying the entire balance of one’s loan under certain circumstances.

Although a direct student loan consolidation may sound like the perfect option for every student, it does carry one drawback. The ability to reduce one’s payment by paying off one’s indebtedness over a longer period of time also incurs significant interest expense. Taking the above example, the individual who chose to reduce their payments by paying over 30 years would pay a total of $62,642.42 in interest. The individual who bit the proverbial bullet and made the higher payments over a ten year term would only pay $18,138.92 in interest. One should carefully consider this when looking at a consolidation loan. Given a good understanding of its drawbacks, though, a direct consolidation loan is an excellent tool for managing one’s student debt.