For helping
the student get the loans for pursuing studies in the USA ,
the Federal Loan
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Consolidation Program was created in 1986.
In 1998, the United States Congress
changed the interest rate to the
aforementioned fixed rate weighted mean,
effective February 1, 1999.
Consolidation
loans taken out before that date had a
variable interest rate, determined by the
individual FDLP loan origination center
(e.g., in the case of a university, that
university) or FFELP lender (e.g., a third
party bank).
In 2005, the Government Accountability
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Office considered consolidating
consolidation loans so that they were
exclusively managed through the FDLP. |
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Based on
several assumptions about future variations in
interest rates, the loan volume, the percentage
of defaulters, cost estimates from the United
States Department of Education, it concluded that while
doing so would incur an additional cost of $46
million, caused by the higher administrative costs
of the FDLP compared to the FFELP, this would be
offset by a $3,100 million saving comprised in part
of avoiding $2,500 million in subsidy costs.[1] In
2008, turmoil in the financial and credit markets
has led |
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to the
suspension of many loan consolidation
programs, including Sallie Mae, Nelnet and Next
Student. |
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Interest rates and payments:
Unlike the other loans, consolidation loans have a
fixed interest rate for the life of the loan
Consolidation loans have longer terms than other
loans.
Debtors can choose terms of 10–30 years. Although
the monthly repayments are lower, the total amount
paid over the term of the loan is higher than would
be paid with other loans.
The fixed interest rate is calculated as the
weighted average of the interest rates of the loans
being consolidated, assigning relative weights
according to the amounts borrowed, rounded up to the
nearest 0.125%, and capped at 8.25%. Some features
of the original consolidated loans, such as post
graduation grace periods and special forgiveness
circumstances, are not carried over into the
consolidation loan, and consolidation loans are not
universally suitable for all debtors.
While included in the term "financial aid" higher
education loans differ from scholarships and grants
in that they must be paid back. They come in several
varieties in the United States:
Federal student loans made to students directly: No
payments while enrolled in at least half time
status. If a student drops below half time status,
the account will go into its 6 month grace period.
If the student re-enrolls in at least half time
status, the loans will be deferred, but when they
drop below half time again they will no longer have
their grace period. Amounts are quite limited as
well.
Federal student loans made to parents: Much higher
limit, but payments start immediately.
Private student loans made to students or parents:
Higher limits and no payments until after
graduation, although interest will start to accrue
immediately. Private loans may be used for any
education related expenses such as tuition, room and
board, books, computers, and past due balances.
Private loans can also be used to supplement federal
student loans, when federal loans, grants and other
forms of financial aid are not sufficient to cover
the full cost of higher education.
Account
A grouping of one or more Direct Loans disbursed by
the U.S. Department of Education. Borrowers can have
one or more accounts.
Each account has a unique
number assigned to identify it. The format of an
account number is your Social Security Number (SSN)
plus a one-digit identifier added to the end (e.g.,
123-45-6789-1). If you receive a notice that affects
all of your possible accounts, the account number on
the notice may be abbreviated to the Social Security
Number only. |
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Accrue
The process whereby interest accumulates on your
loan. When we speak of "interest accruing on your
loan," we mean that the interest due on your loan is
accumulating.
Borrower
Individual who signed and agreed to the terms in the
promissory note and is responsible for repaying a
loan.
Cancellation
Some student loan programs allow for all or part of
the total loan principal and accrued interest to be
canceled in certain circumstances. A canceled loan
may also be referred to as a "discharged loan."
Capitalization
Adding unpaid accrued interest to the principal
balance. Capitalizing interest increases the
principal amount of the loan and the total cost of
the loan. This occurs at the end of a deferment,
forbearance, or grace period on Unsubsidized Loans,
and at the end of a forbearance period on a
Subsidized Loan.
Collection Costs
When a defaulted Direct Loan or FFEL is included in
a Direct Consolidation Loan, collection costs of up
to 18.5 percent of the outstanding principal and
interest are added to the outstanding balance. When
defaulted Perkins Loans and Health and Human Service
(HHS) loans are consolidated, collection costs are
also added. However, collection costs on these loans
may exceed 18.5 percent of the outstanding principal
and interest.
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Consolidation
The process of combining one or more eligible
educational loans into a single new loan. The Direct
Loan Program offers a Direct Consolidation Loan for
those borrowers who are interested in consolidating
their eligible educational loans.
Consolidation Hold
Delays the processing of your Direct Consolidation
Loan until closer to the end of your grace period if
any of the loans you want to consolidate are in a
grace period.
Normally, when you consolidate your existing loan(s)
into a new Direct Consolidation Loan, you will be
required to start repayment of your new loan
immediately. However, if any loan you want to
consolidate is still in a grace period, you can
delay entering repayment on your new Direct
Consolidation Loan until closer to your grace period
end date by entering your expected grace period end
date (month and year) in the space provided on the
application. We will start processing your
application about 45 days before the expected grace
period end date that you provide. If you leave the
expected grace period end date blank on your
consolidation application, your Direct Consolidation
Loan will enter repayment immediately.
You can select a date up to nine (9) months into the
future. If your grace end date is more than 9 months
away, wait to submit your application.
Default
Failure to repay a loan according to the terms
agreed to when borrowers signed their promissory
notes. Default occurs when a Direct Loan borrower
becomes 270 days delinquent in making payments on
their loan(s). The consequences of default can be
severe. |
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Default Aversion
The activities of a guaranty agency that are
designed to prevent a default by a borrower who is
at least 60 days delinquent and that are directly
related to providing collection assistance to the
lender.
Deferment
A deferment is a temporary suspension of a
borrower's monthly loan payment. There are many
different types of deferments available.
During deferment of subsidized loans, principal
payments are postponed and interest does not accrue.
During deferment of unsubsidized loans,
principal payments are postponed but interest
continues to accrue. Accrued unpaid interest
will be added to the principal balance
(capitalized) of the loan(s) at the end of the
deferment period. This will increase the amounts
borrowers owe. |
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