Down Payment Articles & Advice

Private versus Federal Consolidation Loans – What’s the Difference

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:

FFEL Program

Lenders - Banks, secondary markets, and credit unions

Loans accepted - Can accept all eligible loans from eligible borrowers, but are not required.

Repayment Plans- 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)

Timing of consolidation

Borrowers can consolidate after they have left school and all of their loans are in grace or repayment.

Direct Loan Program

Lenders - Federal government

Loans accepted - Must accept all eligible loans from eligible borrowers

Repayment Plans - 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)

Timing of consolidation

Borrowers can consolidate while they are still in school.

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.

Georg Finder, president of CM Financial Services of Fullerton, California, wrote and presents the first State Bar accepted continuing legal education seminar on credit reports and credit damage. He can be reached at gfinder@creditdamage.com (714) 441-0900 or at www.creditdamage.com. inquiries@creditdamage.com

Related Pages

Mortgage Companies - Find mortgage companies online and save on your mortgage - Sources for online mortgage companies - Save thousands by avoiding paying private mortgage insurance.

Mortgage Brokers - Shop these top lenders for comparison quotes.

Selecting The Right Mortgage - How to choose the right mortgage based on your lifestyle - Advice on the best mortgages for different phases of life, future income changes, and risk levels.

Down Payment Leverage - Avoid PMI with a two-loan strategy. How to grow your equity faster.

Online Lenders - Tips on evaluating online lenders and their offerings.

Refinance- Tips on when refinancing is the right decision - How to avoid paying points and other lender fees.

Home Loan Online - Discover the best ways to get the lowest rates - Links for checking current rates.

Loan Directory - Complete home loans directory for thousands of loan products, mortgage companies, brokers, and lenders. Search our loan directory by keyword or by category for complete listings of all things related to mortgages, home equity loans, refinance, and more.

In The News

	Web Home-Loans-Help.com