Repayment terms and interest rates for federal consolidation loans

Federal consolidation loans are a process by which a student can consolidate all their student loans into a single loan. This new loan will give them the advantage of a lower payment every month on the loan amount. Furthermore, they would have to make payment toward only one loan rather than make multiple payments every month on different loans. This way their financial resources are not exasperated due to loan repayment and they can use the money saved on other important expenses they are likely to incur after graduation.The interest rate set for both Direct and FFEL Consolidation Loans is a fixed one which never changes during the life of the loan, which is not the case with Direct and FFEL Stafford Loans. Once a student has consolidated their loans, the interest rate on the consolidated loan will not change even if the interest rate for consolidation loans in general does changes in the future. The rate at which the loan is consolidated is the rate that’s going to stay with the student till he/she completes paying the entire loan amount.The interest rate is calculated by the weighted average of the interest rates on the loans you consolidate, rounded up to the nearest one-eighth of a percent. The interest rate does not exceed 8.25 percent. Let’s take an example here. Assume you have student loan balances of $ 8,000 at 5.99 interest rate, $7,000 loan balance at 6.79 interest rate and $5,000 loan balance at 5.39 interest rate. The first step is to multiply each outstanding loan balance by its interest rate. Here this will be 8000 x 5.99 = 47,920, 7,000 x 6.79 = 47530, 5,000 x 5.39 = 26,950. The second step will be to add the products of the first step, which means 47920 47530 26950 = 122400. The third step is to total the outstanding loan balances. Here it is 8000 7000 5000 = 20000. The next step will be to divide the sum derived in step 2 by the sum from Step 3, which is 122400/20000 = 6.12. The final step is to round the result of Step 4 up to the nearest 1/8th percent. Here, 6.12 up to the nearest 1/8th percent = 6.125. So the fixed interest rate for this loan would be 6.125The payback term for a consolidation loan ranges from a minimum of ten years to a maximum of thirty years. The repayment period also depends on the loan amount that has to be repaid and the repayment plan selected by the applicant. It is also possible to pay back the loan within a shorter period than the maximum period allowed.

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