If you have multiple federal student loans, you may be considering options for repaying them through a Direct Loan. You should know that there are disadvantages to Direct Loans. The most common is that you will have to pay interest on the consolidation loan while you are continuing to pay your other loans. The other disadvantage is that you could end up paying more interest overall because you will have to extend the length of your loan and/or your loan amount.
A Direct Consolidation Loan enables you to combine (consolidate) multiple federal educational loans into a single loan with a single monthly payment. The advantage is that you only have to make one monthly payment instead of several payments. The disadvantage is that you will typically receive lower rates and terms on the consolidation loan than you would get with another type of loan. Also, if you do decide to take out a Direct Consolidation Loan, you won’t receive any kind of federal relief – such as federal subsidized assistance, Pell Grant, etc. – from consolidating your loans.
Consolidation loans are typically best when borrowers consolidate all of their college debt into one loan to avoid payment stress. The consolidation company pays your bills, you make one payment to the consolidation company, and you are done. The advantage is that it makes repayment easier. The disadvantage is that if your credit isn’t good, you may end up paying more interest overall on the consolidation loan than you would have paid if you had kept your individual loans current. Also, if you don’t repay your consolidation loan on time, some lenders will stop offering it. Some lenders will even pursue borrowers for late payments, which could cost them their credit or worse, their homes.
Repayment of federal student loans through a Direct Loan will not qualify for student loan forgiveness programs. But, there are other repayment options available to you. For example, you can complete a loan forgiveness program through your school, if you meet certain requirements. Eligibility is based on financial need and income, but for most students, they qualify for a forgiveness grant.
When you are unemployed or have very low income, and you don’t qualify for federal student loans’ federal loan forgiveness program, you may still qualify for a loan deferment. A deferment allows you to continue to make your monthly payments until you find employment or a second job that pays enough to ensure you’re able to make your payments. If you want to pursue a federal student loan forgiveness, you will need to work in a job that will allow you to keep your loan payments current. If you have a grace period, you can extend your grace period. If you don’t qualify for forgiveness, you must make timely payments during the remainder of your grace period.
You can also contact your private loans’ repayment options provider. They typically offer forbearance plans to graduates with sofas as collateral. You can ask your private loans provider to modify the repayment plan for you and consolidate your federal loans into a single payment. In many cases, they can help you find a payment plan that will help you afford your monthly bills.
You may also want to check with your grace period lenders. If you have unpaid federal loans and intend to pursue loan forgiveness, your grace period will be impacted. Many grace period loans do not have repayment options, so if you don’t owe them any money, you won’t have an incentive to pay them off. The amount you would owe will increase dramatically if you don’t have a grace period.
If you’re unable to find a payment plan that fits your needs, you can apply for an extension. There’s a lot of flexibility available for students who qualify for federal student loans with grace periods. Your payment will continue as long as your loan remains in deferment status, and there are some programs out there with extended repayment terms of up to 30 years. As long as you repay your loan on time, you’ll never have to worry about being defaulted on, and you’ll be able to maintain your subsidized status throughout your graduation and post-graduation job search. Just make sure that you understand the repayment options that are available to you and that you choose the plan that works best for your individual financial situation.