Stafford Student Loan Consolidation - Understanding Stafford Loan Consolidation

Understanding Stafford Loan Consolidation

The world of federal student loans has many different places and many different varieties. One of the varieties of federal student loans is referred to as a Stafford loan. Stafford Loans are completely backed by the federal government and if you meet the qualifications then they can be quite easy to apply for and obtain. But the eligibility requirements are strict and providing proof that you meet those requirements is also quite a chore. But in the end the process is worth it because the Stafford loan offers a lower interest rate than a standard student loan and they also offer very generous consolidation terms after graduation that include a discount to that already low interest rate and payment terms that could extend to as much as 30 years depending on the amount being financed.

In 1965 the United States congress established the guaranteed student loan program with the passing of the Higher Education Act of 1965. It guaranteed assistance to any college bound student that met the requirements of the program. It also guaranteed to the lender the amount of money being financed. That means that if the borrower ever defaulted on the loan then the federal government would reimburse the lender for the remaining amount of the principle owed. Later on, in 1988, the guaranteed federal student loan program was named the Stafford loan after Congressman Robert Stafford who was honored for his work in public education and for his large body of work in the area of higher education for people that could not necessarily afford school.

The concept behind the Stafford loan is that the rates are set for several years at a time which makes the process easier on the lenders and the borrowers. The lenders know what interest rate they are guaranteeing and the borrowers know what rate to expect. The Stafford loan is broken up into two different kinds of loans and the type of Stafford loan you get will affect your interest rate.

The first kind of Stafford loan is the subsidized loan and the subsidized loan comes with the lower interest rate. The subsidized Stafford loan is reserved for students that can demonstrate financial hardship and a need for federal assistance to be able to attend college. During the time the student is in school, and for the grace period after graduation, the federal government pays the interest on the loan. The student does not take on responsibility for the interest on the loan until after the grace period and the student is not billed for any of the interest that the government paid.

The other kind of Stafford loan is an unsubsidized loan. An unsubsidized Stafford loan is when the student accrues the interest on their loan while they are in school and during the grace period after graduation but are not responsible to pay it until after graduation. When it comes time for the student to begin repaying the loan they are allowed to take the interest that accrued while they were in school and add it to the principle of the loan thereby avoiding any penalties for accrued interest.

After graduation the student begins to look to the future and the prospects of repaying their Stafford loans. Consolidation of Stafford loans is an excellent way for the student to do a lot of positive things for their financial future while taking care of their debt. There are two important conditions that should be met before being able to consolidate your Stafford loans. Your loans must not be in default which you can avoid by taking care of your Stafford loans during the grace period which is usually 6 months after graduation or when the student changes to part time. In order to be able to consolidate their Stafford loans the student must no longer be a full time student. The only types of students that qualify for Stafford consolidation are graduated students or part time students.

Consolidating your Stafford loans can qualify you for an even lower interest rate that is going to take a lot off your monthly payment and also reduce your overall interest debt for the life of the loan. You can also begin to establish a positive credit history by getting your Stafford loans consolidated and starting to repay them on time. Stafford loan consolidations offer terms as long as 30 years so you can use that to drastically reduce your monthly payments and allow yourself enough to create a monthly budget you can live with.

Stafford loans and Stafford loan consolidations are backed by the federal government so, as long as you meet the strict requirements, you should have no problem getting accepted and approved. They were designed to assist students get a college education that may not otherwise be able. There are limits per year per student and there are also lifetime limits per student that try to make sure that students are not remaining in school and perpetually living off of guaranteed federal student loans. The limits for undergraduates are different than the limits for graduate students so be certain to discuss your limits and your qualifications with your lender before you sign on the dotted line.

If you have multiple student loans then you also need to work with your financial institution to make sure that you consolidate in the correct grouping and in the correct order. You should consolidate your federal Stafford loans first and then address your private student loans. Discuss the details with your financial institution and be sure that you are consolidating your student loans correctly to avoid any confusion and problems in the future.

Considering that the terms of most student loan consolidation programs can run into some 20 or 30 years it is safe to say that avoiding problems now will save you a great deal of aggravation for many years to come. It can also save you a lot of money to make sure your debt is properly structured and that your repayment schedule is proper and ready to go.