Private versus Federal Consolidation Loans – What\’s the Difference?

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 .

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