Consolidating Federal Student Loans - 5 Steps

College and graduate students everywhere face the same set of challenges, namely:

a. choosing the right field of study or major

b. working hard and focusing so that they can complete their studies within a reasonable period of time

c. finding a way to pay for their education

In essence, this three-pronged set of challenges stays with college students and graduates throughout their higher education experience. And, for those who paid for their education with student loans, the challenge can last for many, many years after graduation.

Why Student Loans Are Hard To Pay Off

Student loan debt can persist for a long time after graduation for a number of reasons. First of all, student loan debt for a given student can easily run into the tens or hundreds of thousands of dollars.

Moreover, students who took out their loans at a time when interest rates were higher might have opted for longer repayment periods - thus extending the life of the loan.

Of course, even for students who opted for shorter repayment periods, repayment remains a challenge. This is because a shorter repayment period means higher monthly payments. Monthly payments can be so high for some graduates that they eclipse the grad's ability to pay for adequate housing, a car, and other living expenses.

But, for students who have taken out multiple loans, the situation can be even more complicated. Having multiple student loans means having to juggle multiple payment amounts, payment due dates and repayment terms.

The Solution: Loan Consolidation

A great solution to help reduce your monthly loan payments and simplify your payment schedule is that of consolidating. This simply means rolling all of your outstanding loans into a single, umbrella loan.

Under a consolidated federal loan, you would have one new, fixed interest rate. The rate would be calculated by taking the weighted average of all outstanding federal student loans, taking into account the interest rates and amount outstanding (balance) for each one. The rate would be rounded up to the nearest 0.125%, with an 8.25% maximum interest rate cap.

Under the new consolidated loan, you would have to just make a single payment each month, instead of two or more. And, the loan would have just one repayment schedule (e.g., 15 years, 20 years, etc.) rather than multiple schedules.

Consolidating Federal Student Loans: 5 Steps

Here are 5 steps to consolidating federal loans:

1. Take An Account Of Your Situation: Sit down with your spreadsheet application (or pencil and paper) and calculate exactly how much you owe in terms of your loans, altogether. Also, be sure to note the interest rate for each loan.

2. Determine Whether Your Existing Loans Are Federal Or Private: If your existing loans are any of the following types, they are federal loans and therefore can be consolidated under the federal student loan consolidation program: Stafford Loans, PLUS Loans, Federal Perkins Loans, HEAL Loans, FFELP and Direct Loans.

Otherwise, they are likely private loans. If they are private, consider a private loan consolidation.

3. Figure Out Your Ideal Repayment Period: When choosing the terms of your new loan, you will have more flexibility in terms of the repayment period than you had before. You will likely be able to choose up to a 30-year repayment period, which can really bring down your payments.

4. Determine How Much You Can Afford to Pay Each Month: Take a hard look at your monthly expenses and decide the maximum amount you can afford to pay in monthly loan payments. Note that your answer will also affect #3 above (repayment period), so revisit if necessary.

5. Apply: Next, you just need to apply for a student loan. Find the federal application online. Or, for private consolidation, choose a student loan consolidation company.

Follow these 5 steps to consolidating federal student loans and simplify your life.