by Maxwell Payne

Created on: February 16, 2009

Federal loan consolidation is generally a good idea for college students graduating college and facing rising student loan repayments. For years many companies that provide student loans to a wide range of students such as SallieMae, AES, and EdAmerica have participated in the FFLEP federal government loan program.

In addition to many student loan companies, many banks such as Bank of America and Chase of JPMorganChase have gotten in on the student loan business, offering loans at competitive rates.

While the economy was doing well, it was seen as a highly profitable business model to be involved in the student loan business. Students looking to consolidate their loans, both private and federal in some cases, could easily get great deals on consolidation agreements.

Many banks and lending companies were eager to work with students on their federal loan consolidation after their education was complete. Students were offered reductions of between 0.5% and 1.0% on the interest on their federal student loans if they agreed to certain terms. Offers such as reductions for paying on time for a number of months, having the amount taken out right from their paycheck, paying online, and more were common during the late 1990s through the early to mid 2000s.

However in 2008 and 2009 with the economy going into a recession, banks closing, credit getting harder to find, and the whole sub prime mortgage meltdown; many student loan lenders and banks are feeling the heat. Many have announced job layoffs in their companies and more and more companies are exiting the student loan business completely. It is important to note that some companies stopped participating in the federal loan program before the economic downturn.

What does this all mean for federal loan consolidation?

Consolidating your loans is usually a good idea and can save you interest money in the long run. The majority of the companies that are exiting the FFLEP program and the disbursement of student loans are mostly banks that deal in other areas of lending. Major student loan companies such as Sallie Mae and AES continue to offer both private and federal loans through their programs.

If you can consolidate your federal loans you should try to do it. Students should be aware of the fact that while many lending companies are still fully participating in the federal student loan program, more and more are suspending or discontinuing their federal loan consolidation programs. Sallie Mae is one of the large lenders that has announced a suspension on any new requests for federal loan consolidations. As interest rates on loans across the board have dropped, especially on federal loans, and as funding has slowed it would appear that offering consolidation on already low rate loans isn't currently profitable.

The good news seems to be that federal loans and private loans are still available for students. Federal loans historically offer far lower interest rates and less fees then private student loans and continue to do so.

If you are nearing the end of your grace period on your federal loans, speak with your lenders to see if they still offer consolidation on federal loans. If not you may be able to consolidate with another lender or wait until conditions improve and try for federal loan consolidation later down the line.

For up to date information on federal loan consolidations, status of FFLEP participation, and more on funding college visit : http://www.finaid.org/loans/ .

Learn more about this author, Maxwell Payne.
Click here to send this author comments or questions.