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“Special” Direct Consolidation Loans and the Obama Student Loan Initiative

January 10, 2012 | Adam S. Minsky, Esq. Policy & Reform

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Recently, the Obama Administration launched a student loan initiative designed to help certain student loan borrowers. The initiative has two parts. Part I deals with a modified Income-Based Repayment program. Part II creates a new type of Direct consolidation loan: a “Special” Direct consolidation loan.

If you remember, consolidation can be a great tool to manage your federal student loans. Special Direct Consolidation loans have a couple of added benefits:

  1. Repayment Term. If you were making payments on your federal student loans, and then took out a regular Direct consolidation loan, your repayment term would start over. For example, if you were on a 10 year repayment plan for your individual loans and made payments for two years, your 10 year clock would start over on the new Direct consolidation loan. For Special Direct Consolidation loans, each loan that is consolidated retains its original repayment term. Since you get credit for those prior payments, you’ll pay less over time than you would with a regular Direct consolidation loan.
  2. Interest Rate. The maximum interest rate for both types of consolidation loans is 8.25%. However, Special Direct Consolidation loans might be eligible for a 0.25% interest rate reduction, which would mean you’d pay slightly less over time.

Eligibility

To be eligible for the Special Direct Consolidation loan, you must have at least one Direct federal student loan, and one FFEL federal student loan. For an explanation of the differences between these two types of federal loans, readmy previous article on that topic. The following loans are *not* eligible for Special Direct consolidation loans (although they might be eligible for regular Direct consolidation loans): defaulted FFEL loans, Perkins Loans, and certain types of federal health loans. Private student loans are ineligible for any federal student loan consolidation program.

Availability

Special Direct Consolidation loans are being offered from January 2012 until June 30, 2012, so only six months.

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Policy & Reform

About Adam S. Minsky, Esq.

Adam S. Minsky founded the first law office in Massachusetts devoted entirely to assisting student loan borrowers, and he is one of the only attorneys in the country practicing in this area of law. He provides counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters. He regularly speaks to students, graduates, and advocates about the latest developments in higher education financing.

Books by Adam S. Minsky

The Student Loan Handbook for Law Students and Attorneys

The Student Loan Handbook for Law Students and Attorneys

Student Loan Debt 101

Student Loan Debt 101: The Definitive Guide to Understanding and Managing Your Student Loans

Student Loans for Parents and Cosigners

The Student Loan Guide for Parents and Cosigners

617-936-2788
asminsky@minsky-law.com
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Boston, MA 02110

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