Pitfalls of Government Consolidation
Student loan consolidation should be the last resort for former students and graduates who want to straighten out their financial situation. Before you jump into a government consolidation loan you should exhaust all other means of repaying your federal student loans.
You can always make contact with the lenders who hold your loans and make payment arrangements. With federal loans, you have the option of deferments and forbearance to avoid having to pay in times of hardship or when you want to continue your education.
Things to Understand about Government Consolidation
There are some benefits when you take on government consolidation. You have a lower payment installment and a considerably lower interest rate. Your loans are all under one lender and have an extended period for repayment. What most people do not realize is that such loans can lead to higher repayment overall because you have to pay interest over a longer period of time.
This additional interest can add thousands to your repayment which adds payments to your term. Sometimes the lender will offer borrower benefits for paying your installments on time over a number of consecutive months and no early repayment fees, but this does not significantly reduce the amount you will repay.
Eligible and Ineligible
One big issue with government consolidation is that not all loans can be consolidated together. Some loans cannot be consolidated at all under government programs. Also, if you have defaulted on loans or are eve delinquent you may be ineligible for government consolidation. Some lenders will point these issues out to you before you apply and check with you on the types of loans you have. Most will not bother and you will find out at the end that not all of your loans can be consolidated.
Many people make a poor decision at this point and choose to consolidate some loans but not all. This still leaves you with multiple loan payments and the headache of having one more lender to deal with. Some loans that are always ineligible include:
- Private loans
- Primary care loans
- Law access loans
- Medical assist loans
- PLATO loans
This may not be the full list of loans that are ineligible but they are the best known. Always be sure to check that your loans are all eligible for consolidation before you agree to any form of government consolidation. Once you have signed the agreement you are legally bound to the contract and have to repay.
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