If you're struggling financially due to excessive student loan payments, you may be able to lower your monthly payments through debt consolidation. One way you can do this is by taking advantage of federal student loan consolidation through a Direct Consolidation Loan.
Unlike other types of debt consolidation where you can pull together different types of debt under one payment, this type of debt consolidation concerns only student loans. Under the Federal Direct Loan Program (FDLP), borrowers can combine all of their Stafford, Parent Loans for Undergraduate Students (PLUS) and Perkins student loans into one new loan for the total amount borrowed.
The primary benefit of federal student loan consolidation is the amount of money saved on monthly payments. However, you may lose some of the incentives a private lender offers, like perks for making your payments through direct debit or over a predetermined number of months.
If you plan on applying for one of these incentives, make sure you pay on time--if you miss one payment, the benefit may go away permanently.
Federal student loan consolidation isn't the best option for everyone. Some of the drawbacks include:
A federal student consolidation loan can fit within almost any debt repayment plan. Since a student consolidation loan is unsecured debt, you're not in any danger of losing property if you fall behind on payments. Defaulting on your payments will lower your credit score and the Department of Education (DOE) may demand that you repay the loan in-full immediately.
The risks of debt consolidation can occur even within the confines of federal student loan consolidation. Before you consolidate your student loans, make sure the payment plan fits into your long-term budget.