The History Of Federal Student Loan Consolidation
federal student loan consolidation as we know it has only been available in the United States, when Congress created the Federal Loan Consolidation Program. The federal student loan, however, has been available since the Higher Education Act of 1965 was signed into law.
Allowing people to consolidate federal student loan accounts makes it easier for graduates to move forward in their professional lives while paying off debts from college. The federal student loan consolidation interest rate changed in 1998, when the United States Congress implemented the weighted mean, which went into effect in February, 1999.
The fixed federal student loan interest rate is calculated as the weighted average of the loans being consolidated, with relative weights according to the amounts borrowed, rounded up to the nearest 0.125 percent, and capped at 8.25 percent. A federal student loan consolidation taken out before 1999 had a variable interest rate. The Government Accountability Office though about combining all of the federal student loan consolidation accounts so they could all be managed solely by the Federal Direct Loan Program. They decided not to do so, however, because of assumptions about future interest rate variations, federal student loan volume, percentage of defaulters, and a cost estimate from the United States Department of Education. Combining the federal student loan consolidation accounts would incur an additional cost of $46 million caused by the higher administrative costs, but this would have been offset by avoiding millions of dollars in subsidy costs.
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