Provide Information on Student Consolidation Loans

It is first necessary to know some background on this discussion. It is important you should know that Congress had voted and passed the Deficit Reduction Act of 2005 which will bring cuts to student loans, which are federal based programs.

The total cut of over $11 billion in student loan as well as redrafting of the laws that govern student loan consolidation, will definitely have a negative impact on those students seeking a higher education. This limited fund too is expected to attract an increased rate of interest that becomes effective on July 01 which will trigger a rush to obtain the college loan as well as to fix the college loan consolidation at prevailing interest rates. Where and how does the student balance out this new arithmetic on higher education?

The Deficit Reduction Act of 2005 paved the way to become a public law which ultimately resulted in a massive cut of over $11 billion in the college loan budgeting over the next few years. No doubt that students and even graduates have been caught unawares and find themselves in a hopeless dilemma.

With increasingly rising college fees and related costs of higher education, the cut in loan amounts plus the burden of an increased interest rate has naturally resulted in many students rushing for approvals on college loan or to freeze the variable interest rates to a fixed one on consolidated loans. Amongst the proposals is to increase the variable interest rate to 6.8 percent for the federal Stafford Loans from the prevailing interest rates as low as 4.7 percent.

Also the fixed interest rates on student loans would jump to 8.5 percent from the prevailing 7.9 percent. The silver lining is that the legislation presently does not touch the consolidation loans current fixed rate at 2.75 percent. To balance out the additional financial liability to the student community, some federal student loans and Student Debt Consolidation Loan may increase the repayment period and do away with the defaulting prepayment penalties.

It is advisable that the students and the graduates should be aware of these new regulations and check out with the creditors the total details on the loan amendments. Some salient points to refer to on the Student Loan Consolidation are as follows:

• There is no change in the single holder status rule.
• There is now no provision to link the options of consolidation for in-school and marital partner.
• There is scope of a subsequent consolidation loan under the DL Program, but only if the borrower is desirous of obtaining repayment plan under income contingency.
• The earlier ‘pre-claims assistance’ is to be known as the ‘default aversion’
• There is a revision that if a borrower has been refused consolidation for not wanting income based repayment plan, then the borrower can avail of direct consolidation loan.
• The borrower can now be approved for DL consolidation loan if there is a default.

Both DL and FFELP have the same terms for Student Loan Consolidation