Federal student loan consolidation

LOAN

A loan is a type of
debt. All material
things can be lent but this article focuses exclusively on monetary loans. Like
all debt instruments, a loan entails the redistribution of financial
assets over time,
between the

lender and the

borrower.

The borrower initially receives an amount of
money from the
lender, which they pay back, usually but not always in regular installments, to
the lender. This service is generally provided at a cost, referred to as
interest on
the debt. A
borrower may be subject to certain restrictions known as
loan
covenants under the terms of the loan.

Acting as a provider of loans is one of the principal tasks for

financial institutions. For other institutions, issuing of
debt contracts such
as
bonds is a typical source of funding. Bank loans and credit are one way to
increase the
money
supply.

Legally, a loan is a contractual promise of a debtor to repay a sum of money
in exchange for the promise of a creditor to give another sum of money.

BANK

A bank is a commercial or state institution that provides financial
services, including issuing money in various forms, receiving deposits of
money, lending money and processing transactions and the creating of credit.
A commercial bank accepts deposits from customers and in turn makes loans,
even in excess of the deposits; a process known as fractional-reserve
banking. Some banks (called Banks of issue) issue banknotes as legal tender.
Many banks offer ancillary financial services to make additional profit; for
example, most banks also rent safe deposit boxes in their branches.



Currently in most jurisdictions commercial banks are regulated and require
permission to operate. Operational authority is granted by bank regulatory
authorities which provides rights to conduct the most fundamental banking
services such as accepting deposits and making loans. A commercial bank is
usually defined as an institution that both accepts deposits and makes
loans; there are also financial institutions that provide selected banking
services without meeting the legal definition of a bank.



Banks have influenced economies and politics for centuries. Historically,
the primary purpose of a bank was to provide loans to trading companies.
Banks provided funds to allow businesses to purchase inventory, and
collected those funds back with interest when the goods were sold. For
centuries, the banking industry only dealt with businesses, not consumers.
Commercial lending today is a very intense activity, with banks carefully
analysing the financial condition of their business clients to determine the
level of risk in each loan transaction. Banking services have expanded to
include services directed at individuals, and risk in these much smaller
transactions are pooled.



A bank generates a profit from the differential between the level of
interest it pays for deposits and other sources of funds, and the level of
interest it charges in its lending activities. This difference is referred
to as the spread between the cost of funds and the loan interest rate.
Historically, profitability from lending activities has been cyclic and
dependent on the needs and strengths of loan customers. In recent history,
investors have demanded a more stable revenue stream and banks have
therefore placed more emphasis on transaction fees, primarily loan fees but
also including service charges on array of deposit activities and ancillary
services (international banking, foreign exchange, insurance, investments,
wire transfers, etc.). However, lending activities still provide the bulk of
a commercial bank's income.



The name bank derives from the Italian word banco "desk", used during the
Renaissance by Florentines bankers, who used to make their transactions
above a desk covered by a green tablecloth.[citation needed]



Financial market

participants


Investors

Speculators

speculation

Institutional investors

Insurance companies

Investment banks

Hedge funds

Mutual funds

Pension funds

Private equity funds

Venture capital funds

Banks

Credit Unions

Trusts

Prime Brokers



Finance series

Financial market

Participants

Corporate finance

Personal finance

Public finance

Banks and Banking

Financial regulation



Federal student loan consolidation

In the United States both the Federal Family Education Loan Program (FFELP)
and the Federal Direct Student Loan Program (FDLP) include consolidation loans
that allow students to consolidate Stafford Loans, PLUS Loans, and Federal
Perkins Loans into one single debt. This results in reduced monthly repayments
and a longer term for the loan. Unlike the other loans, consolidation loans have
a fixed interest rate for the life of the loan.

Interest rates and payments

Consolidation loans have longer terms than other loans. Debtors can choose
terms of 10–30 years. Although the monthly repayments are lower, the total
amount paid over the term of the loan is higher than would be paid with other
loans. The fixed interest rate is calculated as the weighted average of the
interest rates of the loans being consolidated, assigning relative weights
according to the amounts borrowed, rounded up to the nearest 0.125%, and capped
at 8.25%. Some features of the original consolidated loans, such as
postgraduation grace periods and special forgiveness circumstances, are not
carried over into the consolidation loan, and consolidation loans are not
universally suitable for all debtors.

Consolidation loan lenders

Top consolidation lenders ranked by total FY 2006 consolidation loan
originations

Lender name	# of loans	Amt of loans ($)
Federal Direct Student Loan Program	1,169,110	$19,197,268,873
Sallie Mae	866,295	$19,841,423,841
Citibank	232,126	$4,843,119,089
Nelnet	198,624	$4,796,065,812
NextStudent	89,284	$3,320,024,025
JP Morgan Chase	115,777	$2,668,451,098
Goal Financial, LLC	111,426	$2,494,856,673
College Loan Corporation	75,360	$2,245,128,826
AES/PHEAA	166,730	$2,037,618,548
Student Loan Xpress	114,790	$1,880,997,383
Wachovia Education Finance	80,174	$1,674,979,763

^{SOURCE: Stafford (FFEL & Direct) and PLUS (FFEL & Direct) Loans, from
the National Student Loan Data System (NSLDS), US Department of Education,
Fiscal Year 2006.}