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Federal Debt Consolidation - About Federal Debt Consolidation Loans - Federal Family Education Loan, The Direct Loan Program

student ffel government programs

Being in debt can be draining in many ways, but there are a couple of federal debt consolidation solutions that can help remove the burden of student loans. The Higher Education Act provides for two routes for those who want to eliminate their federal debt from education loans. Both the Federal Family Education Loan program and the Direct Loan program combine several different federal education loans into one new loan to simplify things and lower monthly payments. Keep in mind that the only debt consolidation programs that are actually federal programs are these two programs, which focus on debt relief for education loans. Any other debt consolidation programs that claim to be of the federal government are not guaranteed and insured by the government.

Federal Family Education Loan

A Federal Family Education Loan, or FFEL, is a guaranteed-insured loan from the federal government. Each year there are limits as to how much aid is available under this type of loan. This means the government only has a certain amount of money to make this type of loan, and the number of FFEL loans available each year is also limited.

To be eligible to consolidate government education loans under a FFEL, applicants must have outstanding student loans and be in a grace period. It is also possible for those who have defaulted on their student loans to be eligible for this type of federal debt consolidation, but students must have made satisfactory agreements to repay their loan in order to qualify for debt consolidation.

The Direct Loan Program

A Direct Consolidation Loan also combines federal student loans into one loan that comes from the U.S. Department of Education. Students have many different choices to choose from when it comes to paying back their loans, and they can even switch plans at any time. Direct loans are available in both subsidized loans and non-subsidized loans.

Differences between the two federal debt consolidation programs

Every student loan is different, so it is important to explore all of the options available before making a decision. Some types of loans may only be able to be consolidated into a Federal Family Education Loan or a Direct Loan, so that may also limit which federal debt consolidation plan a student may be eligible for.

In some cases, there may also be limitations on the amount available to a student in the FFEL program, whereas in the direct loan program, there are no minimum or maximum amounts required to consolidate loans.

To be eligible for a Direct Consolidation Loan, students must have at least one Direct Loan or FFEL loan that is in a grace or repayment period, in deferment, or defaulted. Loans that fall under an in-school status cannot be consolidated into the Direct Consolidation Loan. If the loan is in default, then the borrower must make satisfactory payment arrangements with the loan holder or agree to make payments under the Income Contingent Repayment Plan, which is a payment plan that bases the amount of your monthly payment on your yearly income, number of people in your family, and amount of your loan.

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