What do you think about government student loan consolidation?

[TheKayla]

So if any of you read any of my previous posts, you'll know that besides my car, I'm in a mountain of student loan debt because of my poor timing with the student loan system. Graduating with a CS degree, I fell into the trap of going to college with costs rose by hundreds of percent, and my degree in the end cost me just under $70k instead of the likely $40k average just a few years before me. #rant over

With those high interest rates tacked on so far (I was never in deferment or anything where I was never paying), eventually another $15k got added on between 7 different loans, bringing my total starting payback amount to $85k post-graduation. Battling interest for over a year and a half and making $1000 payments minimum each month, I have about $75k left so far.

I've always thought off an on about consolidating, but heard good and bad things. Basically what it comes down to from what I've read is, it's good for some, and a bad idea for others. I'm hoping I can re-post my student loan situation and get some feedback on what I should do. Does anyone have any experience with this?

A few things:
- Consolidating through the government allows me to keep my tax benefits and other benefits -- like possible forgiven loans if the worst should happen, payback alternative in case I suddenly lost my job or something, etc. So basically: small tax benefits (nothing compared to what I'm paying in some 8% interest rates though) and peace of mind.

- Consolidating will take an average of my interest rates, bringing some up and some down into one loan

- I've been awesome so far at paying extra towards my loans, so I'm not concerned about having to extend the repayment period -- I'll still take the lesser time to pay it off

- I have three sets of loans: Parent Plus Loans (3 around 8%), my government loans (2 around 5-6%), and one private loan with a 2.5% interest rate. Some payments on single loans have part of the loan subsidized and part of it not. It applies my payments to the amount with the lower rate first of course, so they can make more money off of me. It sure does get confusing.

- I would only be allowed to consolidate my Parent Plus loans together, and then my other government loans together separately, leaving me with three total loans: 1 parent plus consolidated, 1 government consolidated, 1 private.


Do you think it makes sense for me to consolidate, even if only for my peace of mind of having more freedom with my payments? Or do you think it will lead to financial disaster?

I'd be happy to spit out the exact numbers, but my guess is that it'd be about the same repayment in the long-term as long as I keep my payments as high as I am now. I'd love to have more freedom to have a lesser payment on some in order to put more towards the higher parent plus loans. Otherwise more freedom to better manage paying down one loan quicker and freeing up more minimum payments. Right now my total minimum payments for all loans is $665/mo and my takehome pay is $2380/mo.

[ProjectDebtRelief]

I personally believe the consolidation should be a last ditch effort. It's just adding more complication to the situation. I would exhaust all other options first, and then reevaluate my situation to see if consolidation is still necessary. Know what I mean?

Here's a list of pros/cons for student loan consolidation from FinAid:

Why Consolidate?

Another good one here:

Consolidation Pros and Cons

I also wrote briefly on the topic here:

Do You Qualify for Student Loan Forgiveness?

Student Debt Options

Interested to see how this works out for you! I still have some student debt kicking around...

[TheKayla]

Why would you consider consolidation a last ditch option if I'm going to be paying extra anyway? I wouldn't be consolidating for the reasons of extending repayment or getting a lower monthly bill and would still be putting what I currently am toward them. It seems it would only highly simplify things if I turned my 7 different loans into 3, not complicate things. Having to constantly manage that many loans and calculate the interest and savings and decide which loan for all additional income I receive is far more complicated.

[Retired To Win]

This may not really be addressing your question, but...

Have you considered concentrating the extra money you are paying on these loans so that it all goes to either your smallest loan (so you can get rid of it) or the loan with the highest interest rate (so you can save the most on interest)?

[TheKayla]

This may not really be addressing your question, but...

Have you considered concentrating the extra money you are paying on these loans so that it all goes to either your smallest loan (so you can get rid of it) or the loan with the highest interest rate (so you can save the most on interest)?

Thats of course what I've been doing so far. I can make the minimums easily right now, and actually pay hundreds extra each month. So it's not about last resort at all. However, I hate that most of the loans are just sitting there with me paying the minimums while I focus on one or the other. My question was more in regards to convenience, and particularly if anyone had any red flags about it or opinions, particularly for ease of use.

[dczech09]

As you know, you can only consolidate the Parent Plus loans, government loans, and private loans separately. So you really will not due much damage to interest rates.

The big thing to watch out for is how many payments and how much each payment will be. Sure, you can go down to a few payments that are potentially smaller. However, if you have a longer payment term, you will potentially spend more.

From a convenience standpoint, you will have less checks to write which is nice. But you're still paying about the same amount anyway.

Whenever consolidating any debt, you need to focus on "how much total" not "how much per month." That is the only way you will determine if your consolidation makes sense. You also need to watch out for any fees or additional costs.

Also, avoid income-based repayments. It does not sound like you were considering it. If you want an explanation why, feel free to check out my blog. I just recently wrote a three-part-post explaining income-based repayment.

It sounds like you're doing great though. You're on top of your payments and you are able to pay quite a bit extra. It will take some time to eliminate that student loan debt, but keep going and you will win! I just recently finished my student loans, and I tell ya it is a great feeling!

[disneysteve]

I'd love to have more freedom to have a lesser payment on some in order to put more towards the higher parent plus loans. Otherwise more freedom to better manage paying down one loan quicker and freeing up more minimum payments.

The downside of consolidating is that it takes away that freedom since you go from several loans that you can choose how to pay to one loan with everything lumped together. With individual loans, you can snowball your payments (either highest to lowest interest rate or smallest to largest balance). That allows you to knock out the loans one by one and free up money to then apply to the next one on your list. Once you consolidate, it's all one payment (or 3 payments in your case).

If you do consolidate, you want to be absolutely sure that the rate they give you will be no higher than the weighted average you are currently paying. I definitely wouldn't do it if it meant a higher overall rate. Personally, I wouldn't do it at all because I wouldn't want to sacrifice the freedom to control how I direct my money and i what order I pay off each loan.

[breathemusic]

Maybe I'm misunderstanding... but if you have several of each type of loan, are they sending you a different bill for each loan? I never consolidated any of my student loans so I had about 4 citibank loans, several perkins loans, and several stafford loans. But they just sent me one bill for each Citi, perkins, and stafford loan that just totalled up all of the minimum payments. So it's not like I had to mess with a ton of individual payments. On top of that, I was doing automatic payments since for some loans it shaved of .25% of interest.

If you're just getting one bill for each loan type, then consolidating won't technically save you any time or make anything easier. Add to that what DS said about not being able to throw all your extra money at a specific loan (like the highest interest loan) and I personally think it's not worth it to consolidate.

[disneysteve]

Maybe I'm misunderstanding... but if you have several of each type of loan, are they sending you a different bill for each loan? I never consolidated any of my student loans so I had about 4 citibank loans, several perkins loans, and several stafford loans. But they just sent me one bill for each Citi, perkins, and stafford loan that just totalled up all of the minimum payments.

Come to think of it, I believe my loans were the same way. I got one statement that listed each individual loan from that lender and I sent in one payment.

Of course, the hassle was always getting them to properly apply the extra payments I made each month.