Federal Loans, Student Loan Consolidation

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Are You Consolidating Within Grace Period? Make Note of a Loophole

By Nihit Aurora

Federal loans offer a great way for parents and students alike to pay for educational expenses. The following loans can be utilized for educational purposes and are eligible for student loan consolidation.

Federal Stafford Loan
Federal Direct Loan
Federal Perkins Loan
Health Professions Student Loan
Nursing Student Loan (NSL)
Federally Insured Student Loan (FISL)
Auxiliary Loan to Assist Students (ALAS)
Federal Supplemental Loan for Students (SLS)
National Direct Student Loan (NDSL)
Health Education Assistance Loan (HEAL)
Federal Parent Loans for Undergraduate Students (PLUS)
Loan for Disadvantaged Students (LDS)

There is a grace period available on certain loans if a student wishes to begin repayment. For example, the grace period available for beginning repayments on a Stafford Loan is six months and that for a Perkins Loan nine months. The grace period for an FISL loan is 12 months. 'PLUS' loans do not carry a grace period for repayment.

However, there is no grace period available for Federal Consolidation Loans. In this case, the repayment begins immediately after the consolidation loan is disbursed. The first payment is due no later than 60 days after the funding.

Students who elect to consolidate within the grace period lose the remainder of the grace period. However, there is a loophole known as the delayed disbursement loophole that can be used if the lender agrees to cooperate with the buyer. In instances where the lender delays the disbursement of the consolidation loan right until the end of the grace period the student benefits by retaining most of the grace period.

Furthermore, the U.S. Department of Education has published relevant guidance for borrowers with variable rate loans. These guidelines indicate that lenders can provide the borrower with suitable interest rates. Either this can be done upon the receipt of a significantly complete application for consolidation of the loan or at the time the lender disburses the loan.

Borrowers can effectively lock in a low rate of interest while still being able to hold onto the grace period. However, the department's guidelines rest on the original ambiguity that is present in the Higher Education Act. This ambiguity revolves around the interest rates on consolidation loans, whereby it is not certain if these interest rates are based on the actual rates in effect when the loan application is made or when the consolidation loan is funded.

On the Net

Grace Period Loan Consolidation
www.onesimpleloan.com/grace_period.asp

Federal Student Loan Consolidation
www.federalconsolidation.org/repaymentfaq.htm

	Article Title : Are You Consolidating Within Grace Period? Make Note of a Loophole
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