It is of significant importance to have a good credit history. A debt free report may be unachievable but it is always good to pay off your debt on time and live a free life where there is no necessity to live by others’ rules.

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Any financial process consists of subsequent impact on a host of future financial dealings. In this article, we explain how your finances will be affected for the better or worse when you consolidate your loans. Broadly, consolidation makes its effect felt on the following areas: 

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  • Borrower Limit
  • School’s Default Ratio

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Few common questions regarding the consolidation process, eligibility criteria etc have been addressed in this article. As we have already dealt with the advantages of consolidation, we will not delve in to that topic.

1. What is the difference between FFEL consolidation and Direct Consolidation?

Differences if any must be checked with the office to which the consolidation application is being sent. If at all there are any differences, they will be mainly in the domain of the number of loans that you can consolidate, minimum amount for consolidation, requirement of documents for each type of loan, variation in the electronic debit system of repayment and repayment plans.

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Why should you consolidate your loans?

Before we move to answer this question, let us have a brief look at what consolidation means and what are the essential steps to consolidation.

What is Consolidation?

Let us explain this process using 3 characters; Anne, Mary and Rachel. Anne is a student who is a borrower of a direct loan and few other educational loans. Mary is the lender of the federal agent who has lent money to Anne. Rachel represents the US Department of Education. Anne has $1000 as her total borrowed amount from Mary. This is the sum of all the loans that has been borrowed from Mary.

Under the consolidation process, Anne consolidates all her loans with Rachel. Rachel pays the loan amount to Mary and provides Anne with a new loan and a new interest rate. Anne does this through two main processes:
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