American Loan Guide

Federal Direct Loan Program,Direct Loan Program,Direct Loan Consolidation,Direct Home Loan

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower.

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 loan.

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 Loan?

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.


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