Loan consolidation has become quite a confusing concept with all of its different definitions. Basically, loan consolidation is a process in which you combine several loans into one with the potential opportunity to get more favorable repayment terms. We will discuss everything you need to know about consolidating your federal loans, not private loans, and how you can achieve this on your own without spending a dime.

What is Federal Loan Consolidation?

Federal loan consolidation is different from private loan consolidation and refinancing. You do it through a Direct Consolidation Loan. Doing so will mean that your federal loans will remain federal and not be transferred into a private loan which is what refinancing does. This is important for that means you get to keep all of the protections that come with federal loans such as loan deferment and forbearance in case your financial situation suddenly changes.

Don’t Pay to Do It

There are a lot of scams out there where people try to make you pay a large fee to have them consolidate your federal student loans. You do not have to pay a dime to consolidate your loans, and here are the steps that you can take to do this process yourself.

First, you should determine if consolidation is the best thing for you to do. It is an option that is meant to take multiple loans and fold them into one for the purpose of getting more favorable terms. If you only have a single loan, but still want better terms, then refinancing may be something you want to look into more thoroughly.

Your next step is to start the consolidation process. As mentioned before, you consolidate your loans through a Direct Consolidation Loan. You can apply to do so here with the Office of Federal Student Aid.

One of the things you will have to think heavily on is what sort of terms you are looking for. If you are struggling financially, then you will probably want to extend the repayment period to get a lower payment. The drawback with this strategy is that you will be in debt longer, but if you get a lower interest rate, that means you can pay off more of the loan at a faster rate. If you are seeking a quicker way to pay off the loan, and you are in a more financially stable position, then you might want to shorten the repayment period so you can knock out the loan sooner.

Lastly, you should pay attention to what you are signing. Review the terms several times over, and make sure that you aren’t going to be losing any protections or are sacrificing something that you would prefer to keep. Pay attention to the fine print, review how much you will have to pay each month, and for how long. By taking this extra bit of time, you can confidently conclude that you made the right decision for your own unique situation.