After College: Federal Direct Consolidation Loans May Be, But Aren’t Always, Helpful

Over the last few weeks we’ve described all the Federal Direct Loan Program (FDLP) repayment plans. Today we examine another strategy for managing FDLP debt repayment — an FDLP Consolidation Loan.

Consolidation will probably give you more than 10 years to repay under the FDLP’s conventional repayment plans. Specifically:

  • An outstanding balance of less than $7,500 gets a 10 year repayment period;
  • An outstanding balance of $7,500 to $9,999 gets a 12 year repayment period;
  • An outstanding balance of $10,000 to $19,999 gets a 15 year repayment period;
  • An outstanding balance of $20,000 to $39,999 gets a 20 year repayment period
  • An outstanding balance of $40,000 to $59,999 gets a 25 year repayment period; and
  • An outstanding balance of $60,000 or more gets a 30 year repayment period.

Longer repayment can significantly lower your monthly payments, which is helpful if you want to use a conventional repayment plan but can’t afford what you’d pay each month within it’s normal 10 year length. But a longer repayment period also means your debt will be outstanding much longer and it’ll cost lot’s more of your lifelong earnings to repay it.

Another advantage of FDLP Consolidation Loans is that you keep almost all the borrower benefits — deferment, forbearance, etc. — available on your other federal Loans. Using a private refinancing loan instead of an FDLP Consolidation Loan means you lose these benefits.

FDLP Consolidation Loan interest rates are always rounded to an even one-eight of one percent. So, for example, if loans you consolidate currently have a combined interest rate of 5.38%, that’ll rise to 5.50%. This is a slight increase, but it’s an increase nonetheless.

Would you consolidate both subsidized and unsubsidized FDLP Loans? If so, your Consolidation Loan’s interest will be both subsidized and unsubsidized in proportion to the subsidized and unsubsidized debts you consolidate.

You may consolidate anytime after leaving college, but be careful. Consolidating during your grace period will start your monthly payments during that period unless you indicate on your FDLP Consolidation application that you want consolidation delayed until your grace period concludes. Then payment will begin up to 60 days after grace-end.

What would be the monthly payment amount, repayment period length, and total amount you’d repay with an FDLP Consolidation Loan? You may request this information from your loan servicer before consolidating.

You can use any repayment plan if you consolidate, but you must use an income-driven repayment plan to get Public Service Loan Forgiveness (PSLF) 10 years after consolidating. If PSLF isn’t for you, income-driven repayment also qualifies you for forgiveness on anything you still owe 20-25 years of payments on your FDLP Consolidation Loan.

Consolidation also creates a brand new debt that repays any federal (but not non-federal) college loans you choose, giving you just one federal debt. But Washington places all your FDLP Loans with one loan servicer, and it’s required to combine those loans into one account mimicking a single debt, so you may not need to consolidate if you only have FDLP debt.

For more information, review the government’s official loan consolidation webpage.

For low-income and/or high-debt borrowers, consolidation is a fundamental strategy for keeping FDLP payments affordable. Look into it, and if it’ll help meet your repayment needs, go for it!

Let College Affordability Solutions use its four decades of student loan experience help you select workable strategies for repaying your higher education debt. Call (512) 366-5354 or email to set up one or more free consultations with us if you need help.

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