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Loan consolidation enables the students or their parents to combine several different loans into one convenient big loan. This loan from a single vendor is used to settle the outstanding balances of other loans. Federal student loans follow a different consolidation method, as the U.S. government guarantees them. In this consolidation process, the student's existing loans are bought and dissolved by a willing consolidation company, or in some cases by the Department of Education (DOE).
One of the best things about the Federal consolidation loan program is that there are no repayment deadlines. One must take care of certain things, however, before consolidating. After leaving the school when your grace period comes to an end, the higher repayment interest rate is applied to calculate the average fixed rate. In other words, if you choose to consolidate after the expiration of your grace period, your fixed rate of interest will be higher.
The rates of interest are calculated upon the current year's student loan rate, which can vary from the present 4.70% to a high of 9%. Using the state's consolidation system you can consolidate with the private lender of your choice and then reconsolidate again with the DOE. After you consolidate, the loans will be tuned to a fixed rate of the year of consolidation, and they will not change if you decide to reconsolidate. It is therefore incorrect to call it refinancing, as the loan rate is not changed; only a ceiling is fixed over the number.
There are many benefits of going for a Federal college loan consolidation. This program doesn't charge any fee from the person who applies for the loan, unlike other private companies who thrive on the ‘cut' which students have to shell out to avail their facilities. In fact, there are many private funding companies who are charging a significant amount as fees by cashing subsidies from the Federal government.