Federal Debt Consolidation

Federal Debt Consolidation

Tens of thousands of students are discovering the financial advantage of federal debt consolidation. In essence, federal debt consolidation allows students to combine multiple student loans into a single loan. This new federal debt consolidation loan is, of course, at a lower interest rate than those that it replaces.

Of tremendous benefit to many students, even beyond the lower interest rate, is that federal debt consolidation enables an increase in loan amortization period. To put this in non-lender terms: a student can use a federal debt consolidation loan to increase their repayment period from, say, 5 years to 15 years. This increase in loan duration radically reduces the monthly payment. This is particularly helpful for new graduates who have yet to establish their careers, and as such, have yet to reach their earning potential. Without the aid of federal debt consolidation, it’s possible that they might never get there.

Federal debt consolidation, as an instrument of the government, offers some additional advantages that other lenders (e.g. banks) often don’t provide; especially to students. For example, students can pay off their federally consolidated debt early if they wish, at no penalty. Since most banks include the interest rate as part of their fee for lending the money in the first place, most borrowers who attempt to repay a traditional bank loan earlier will likely face penalties (including some that are quite punitive!). Yet a federal consolidation loan, since it is backed by the government as is intended to help students (and former students), does not have this barrier to early repayment in place.

A Federal debt consolidation loan also offers students the convenience of a single loan payment each month. This is quite a relief for many young people who have yet to form disciplined spending habits. Indeed, missing the “payment date” for a traditional loan often incurs a penalty, on top of added interest. A federal debt consolidation loan, with its single payment, can help students stay organized, and on the road to a bright credit future.

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