Direct Consolidation Loan
In the past the federal government has had a lending program to
assist people with funding their secondary education costs but
this system has it draw backs. The old system of student loans was
fraught with fraud, was time consuming and very confusing to most
people. With the old system there were more than 7.000 lenders
with 65 secondary markets and 35 guaranty agencies. For one loan
most students would have to fill out countless forms and apply to
numerous agencies until they finally got the answer they needed.
The other big problem with the old lending system was the cost of
administrating the loans. On average it cost the government $11
per $100 loaned to manage the accounts. The solution to this is
the simplified Direct Loan system that is now in place. The Direct
Loan system is exactly what it sounds like; the government lends
the money directly to you thus eliminating the middleman and much
of the cost of lending money to students.
Direct Loan can be of two types: - a subsidized or unsubsidized
A subsidized loan
is generally for people who would not
normally be able to afford going to college at all. With a
subsidized loan the government pays all the interest on the loan
until your schooling is finished at which point you must begin to
repay the loan.
An unsubsidized loan
is the standard Direct Consolidation
Loan for most people. With an unsubsidized loan you must pay
interest on the loan while you are in school and then begin to
repay the loan after you graduate. You do have the option of
deferring the interest payments while you are in school. If you
elect for this option the amount of the interest is added to the
principal of the loan each month until you graduate.
Loans which can be consolidated under a Direct Consolidation
Most federal student loans and PLUS Loans can be consolidated. The
Loan Origination Center's consolidation department can give you a
complete list of eligible loans. Loans that are consolidated into
a Direct Consolidation Loan fall into one of three categories:
• Direct Subsidized Consolidation Loans
• Direct Unsubsidized Consolidation Loans
• Direct PLUS Consolidation Loans
If you have loans from more than one category, you still have only
one Direct Consolidation Loan and make only one monthly payment.
However, interest rates differ depending on the loan category, as
do repayment and deferment options for the borrower.
You can get a direct consolidation loan during your grace period,
once you have entered repayment, or during periods of forbearance.
You must consolidate at least one Direct Loan or FFEL Loan.
If you don't have a Direct Loan but have an FFEL Loan, you must
first contact an FFEL lender who makes FFEL Direct Consolidation
Loans to ask about obtaining an FFEL Consolidation Loan. If you
are eligible for the Direct Loan Income Contingent Repayment Plan
and you are unable to obtain an FFEL Direct Consolidation Loan or
one with income-sensitive repayment terms that are acceptable to
you, you are eligible to apply for a Direct Consolidation Loan.
As you can see Direct Consolidation Loans are a fast and efficient
way to receive college.