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By Vanessa McHooley

Private versus Federal Consolidation Loans – What’s theDifference?

A consolidation loan lets you combine your federal student loansinto a single loan with one monthly payment. There are twoprograms available for consolidating student loans:

-The Federal Family Education Loan (FFEL) Program, through whichbanks, secondary markets, credit unions, and other lendersprovide the consolidation loan

-The William D. Ford Federal Direct Loan (Direct Loan) Program,through which the federal government provides the consolidationloan

There are several differences between these programs, asoutlined in the table below:

FFEL Program

Lenders - Banks, secondary markets, and credit unions

Loans accepted - Can accept all eligible loans from eligibleborrowers, but are not required.

Repayment Plans- Offers four repayment plans

-Standard Repayment Plan

-Graduated Repayment Plan

-Extended Repayment Plan

-Income - Sensitive

Repayment Plan (in which the monthly payment amount is setaccording to the borrower's income and loan debt)

Timing of consolidation

Borrowers can consolidate after they have left school and all oftheir loans are in grace or repayment.

Direct Loan Program

Lenders - Federal government

Loans accepted - Must accept all eligible loans from eligibleborrowers

Repayment Plans - Offers four repayment plans

-Standard Repayment Plan

-Graduated Repayment Plan

-Extended Repayment Plan

-Income - COntingent Repayment Plan (in which the monthlypayment amount is set according to the borrower's income, familysize, and loan debt)

Timing of consolidation

Borrowers can consolidate while they are still in school.

In other ways, the two loan programs are similar:

-They both have options to allow borrowers who have defaulted ontheir loans to consolidate those loans.

-In general, neither of them charges prepayment penalties ororigination fees, nor are credit checks or co-signers required.However, some private lenders may charge processing fees.

-The base interest rate on your consolidation loan is the sameregardless of the lender. However, private lenders may offeradditional incentives such as a reduced rate if you make yourpayment on time and if you have your payment automaticallydebited from your bank account.

Keep in mind that if all of your loans are through one lender,that lender has the first option to consolidate the loans. Onlyif that lender declines can you go elsewhere.

This article is distributed by NextStudent. At NextStudent, webelieve that getting an education is the best investment you canmake, and we're dedicated to helping you pursue your educationdreams by making college funding as easy as possible. We inviteyou to learn more about Private Consolidation Loans or FederalConsolidation Loans at http://www.NextStudent.com .

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