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 Private versus Federal Consolidation Loans – What’s the Difference?
Published Date: 2005-02-24 13:20:03 WorkOnInternet.com
 A consolidation loan lets you combine your federal student loans into a single loan with one monthly payment. There are two programs available for consolidating student loans:
- The Federal Family Education Loan(FFEL)Program,through which banks,secondary
markets, credit unions, and other lenders provide the consolidation loan
- The William D. Ford Federal Direct Loan (Direct Loan) Program, through which
the federal government provides the consolidation loan
There are several differences between these programs, as outlined in the table
below:
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FFEL Program
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Direct Loan Program
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Lenders
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Banks, secondary markets, and credit unions
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Federal government
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Loans accepted
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Can accept all eligible loans from eligible borrowers, but are not required
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Must accept all eligible loans from eligible borrowers
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Repayment Plans
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Offers four repayment plans:
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
- Income - Sensitive Repayment Plan (in which the monthly payment amount
is set according to the borrower's income and loan debt)
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Offers four repayment plans:
- Standard Repayment Plan
- Graduated Repayment Plan
- Extended Repayment Plan
- Income - Contingent Repayment Plan (in which the monthly payment amount
is set according to the borrower's income, family size, and loan debt)
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Timing of consolidation
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Borrowers can consolidate after they have left school and all of their
loans are in grace or repayment.
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Borrowers can consolidate while they are still in school.
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In other ways, the two loan programs are similar:
- They both have options to allow borrowers who have defaulted on their loans
to consolidate those loans.
- In general, neither of them charges prepayment penalties or origination
fees, nor are credit checks or co-signers required. However, some private
lenders may charge processing fees.
- The base interest rate on your consolidation loan is the same regardless
of the lender. However, private lenders may offer additional incentives such
as a reduced rate if you make your payment on time and if you have your payment
automatically debited from your bank account.
Keep in mind that if all of your loans are through one lender, that lender
has the first option to consolidate the loans. Only if that lender declines
can you go elsewhere.
This article is distributed by NextStudent. At NextStudent, we believe that
getting an education is the best investment you can make, and we're dedicated
to helping you pursue your education dreams by making college funding as easy
as possible. We invite you to learn more about Private
Consolidation Loans or Federal
Consolidation Loans at http://www.NextStudent.com.
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