consolidate undergrad loans?

[ewing]

I'm graduating college in 6 months (woot!). I have about $20K in Staffords from undergrad; is it worth consolidating them now (or rather in a few months when my grace period is winding down) so as to lock in to the low interest rates now? I understand I can defer for the next 6 years or so (med school and economic hardship of residency) and *then* consolidate, but by then it's not unreasonable to think that interest rates will by 2% to 4% per year higher.

What are the pros and cons of consolidating now?

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[mpp]

The pro is definitely to lock in that low rate. The con is that some consolidation programs will not allow you to defer during medical school or you will be required to make the interest payments on that loan. If you can afford the interest payments then there is really on reason not to.

You might want to wait until after May when the new loan rate is announced that will commence July 1. If the new rate is lower, then wait until after July 1. If higher, then you can consolidate after July 1.

There is talk that consolidation loans will become variable rate loans. Be on the lookout for that and consolidate before then. Speak to your financial aid office at your medical school to discuss your best options. Good luck.

 

[southerndoc]

Yes, it will be a good idea to consolidate your loans. Here's why:

1. There is a lot of discussiona bout making consolidated loans variable rate loans. An AAMC rep stated this may occur as early as the end of this year, but is more likely to occur next year if the government implements it.

2. Consolidating now does not prevent you from reconsolidating later. When you consolidate after medical school or whatever, your loans can be re-consolidated with a weighted average of the interest rate. So if you consolidated your 20k today, it would consolidate at a 2.875% interest rate (provided you consolidate during grace or deferment). If interest is 4.0% when you graduate, and you consolidate 100k of debt, then they will compute the consolidated loan interest rate at 100k x.04 + 20k x 0.02875. So you're sure to lose if you don't consolidate because it's unlikely that interest rates will remain this low throughout your professional school.

Now, here is some very important info:

1. DO NOT CONSOLIDATE PRIOR TO JUNE 1. This cannot be overstated. The Department of Education bases its interest rates on the 91-day Treasury Bill that's auctioned at the end of May. This year's will be released on May 28th. The T-bill plus 1.7% is your interest rate during deferment (includes economic hardship), in-school status, and grace periods. The T-bill plus 2.3% is your interest rate during repayment and forbearance.

2. CONSOLIDATE DURING YOUR GRACE PERIOD, IN-SCHOOL STATUS, OR DURING AN ECONOMIC HARDSHIP DEFERMENT. Do not wait until you are in forbearance or repayment before consolidating. If you do, your fixed, consolidated interest rate will increase by 0.6% points. For example, if you consolidated today while in school, deferment, or in a grace period, your interest rate would be 2.875% fixed for the life of the loan. If you consolidated today during forbearance or repayment, your interest rate would be 3.525%.

3. Why are the numbers above different than your current interest rates? Because when you consolidate, your interest rate is rounded up to the nearest 1/8th percent.

4. Again, I cannot overemphasize the importance of waiting until the end of May to see what interest rates are going to do. Currently the 91-day T-bill is being auctioned at 0.9%, which means you'll see your interest rates drop by .2% if you wait to consolidate. If the 91-day T-bill goes up above 1.1%, then you have until June 30 to consolidate to keep today's interest rate (since the next interest rate doesn't go into effect until July 1). So basically you have 30 days to see if you get a lower interest rate or not.

5. If interest rates are lower or remain the same, you can probably wait to consolidate so long as you are planning on going to a professional school or will qualify for economic hardship. When the government decides to go to variable rate consolidated loans, then they are likely to announce this. It's not going to be a surprise. There will be a lead-in period.

For more info, check out the MEDLOANS section of the AAMC's website at www.aamc.org/medloans

Hope this helps! (Sorry for the long post!)

 

[Caverject]

I say its a VERY BAD IDEA to do it now if you plan to start medical school soon. You can only consolidate once in your entire life. That means when you graduate out of med school, you will have 4 loans that you can not consolidate into one loan. If you decided that you want to do it anyway, I agree with SothernDOC and wait until may to do it.

 

[southerndoc]

I say its a VERY BAD IDEA to do it now if you plan to start medical school soon. You can only consolidate once in your entire life. That means when you graduate out of med school, you will have 4 loans that you can not consolidate into one loan. If you decided that you want to do it anyway, I agree with SothernDOC and wait until may to do it.

That's not true South. As long as you have one loan not in the consolidation, you can reconsolidate.

http://www.salliemae.com/school/faqs/consolidation_faq.html?Q=Q31#Q31

Besides, if you lock in on a low interest rate, it would be better to have the low interest and have them make two separate deductions (two different consolidated loans) than to have one consolidated loan at a higher interest. However, this is not the case since you can reconsolidate. However, the only way you can reconsolidate is if you have a non-consolidated loan and you wish to consolidate everything. Going to medical school, I am sure you will get other loans.

By the way, Sallie Mae currently has a sweet deal. On top of that interest rate (more on that later), you get a .25% interest rate deduction for signing up for automatic debit and a 1% interest rate deduction for making 36 on-time payments (hard not to if you sign up for automatic debit). So your interest rate would be 1.25% lower -- if you consolidated at 2.875%, that's 1.625%!!

More on the interest rates . . . They are set by the Department of Education. ALL lenders must abide by their interest rates during the consolidation process. So don't let a lender lead you to believe that they have a better interest rate. They're all the same. The only differences are the perks (e.g., amount of interest reduced after so many on-time monthly payments, signing up for automatic debit, etc.).

 

[ewing]

That's not true South. As long as you have one loan not in the consolidation, you can reconsolidate.

http://www.salliemae.com/school/faqs/consolidation_faq.html?Q=Q31#Q31

Besides, if you lock in on a low interest rate, it would be better to have the low interest and have them make two separate deductions (two different consolidated loans) than to have one consolidated loan at a higher interest. However, this is not the case since you can reconsolidate. However, the only way you can reconsolidate is if you have a non-consolidated loan and you wish to consolidate everything. Going to medical school, I am sure you will get other loans.

By the way, Sallie Mae currently has a sweet deal. On top of that interest rate (more on that later), you get a .25% interest rate deduction for signing up for automatic debit and a 1% interest rate deduction for making 36 on-time payments (hard not to if you sign up for automatic debit). So your interest rate would be 1.25% lower -- if you consolidated at 2.875%, that's 1.625%!!

More on the interest rates . . . They are set by the Department of Education. ALL lenders must abide by their interest rates during the consolidation process. So don't let a lender lead you to believe that they have a better interest rate. They're all the same. The only differences are the perks (e.g., amount of interest reduced after so many on-time monthly payments, signing up for automatic debit, etc.).

Thank you so much for you answers. I'm graduating at the end of May, so then I get 6 months of grace? Is there any benefit in waiting until lat in the grace period to consolidate or should I just do it in June/July? FYI, my Staffords are unsub., so I think I keep paying interest on them when they're in grace or not.

 

[southerndoc]

Thank you so much for you answers. I'm graduating at the end of May, so then I get 6 months of grace? Is there any benefit in waiting until lat in the grace period to consolidate or should I just do it in June/July? FYI, my Staffords are unsub., so I think I keep paying interest on them when they're in grace or not.

If they are unsubsidized, then yea, they will accumulate interest that will capitalize periodically.

If interest rates go down, then you can wait until end of grace period (or during school if you're going to graduate or professional school). Just be on the lookout for an announcement of the government approving variable rate consolidation loans. When they make that announcement, you need to consolidate immediately. Check out the AAMC's MEDLOANS section for "Money Matters," an email list that discusses these things. You won't get bombarded by emails.

I didn't mention this before, but if you consolidate during your grace period, you forfeit any remaining grace period. So if you graduate in May and consolidate in July, you will enter into a repayment period almost immediately. That's not a good thing if you aren't going to graduate or professional school anytime soon!

 

[Caverject]

I stand corrected...thank you!

 

[southerndoc]

I stand corrected...thank you!

Trust me, I didn't have a clue until some recent seminars from an AAMC financial aid rep and my financial aid exit interview for med school.

I've been thoroughly investigating consolidation because I won't qualify for economic hardship during residency (resident salary is too much, normally I wouldn't complain about that, but that's a story for another day). So I have to consolidate during my grace period to keep my interest rate from going up when I enter into forbearance.

 

[salem7]

After consolidation, are you required to begin repayment immediately or do you have the option to defer until after you graduate professional school?

 

[mpp]

You can defer but you may be required to pay the interest as it accrues. It depends on the consolidation service.

 

[southerndoc]

You can defer but you may be required to pay the interest as it accrues. It depends on the consolidation service.

From what I've been told, they cannot make you pay interest while you are in school, deferment, grace, or forbearance. The government protects that right. I could be wrong though. I haven't specifically researched this.

 

[mpp]

This is true for Stafford/Perkins or other government loans. Consolidation loans are not necessarily government loans. Consolidation is very confusing because there are different ways to consolidate depending on the lender (direct lender, one private lender, or multiple private lenders) and whether you choose to consolidate under a federal or private program. Each has their own benefits and eligibility varies. For example, if all your loans are with one private lender, then you must conoslidate with them. If you have mutliple private lenders than you can choose anybody (sounds stupid but it's the federal government...and to think that some people what them to run our healthcare system too). You can't consolidate directly with the federal government unless you have one or more Direct Loans. Although you can consolidate with a quasi-governmental agency like Sallie Mae if you have multiple private lenders or if your private lender does not offer a consolidation program with multiple payback options. Also, you may not be able to consolidate while you are in school at all if all your loans are with the same private lender. Those solicitations you get in the mail are private for-profit companies wanting you to consolidate with them, meaning they will pay back your loans (regardless of source) and you are at their mercy with fewer government rules for them to abide by (although they'll have you believe they are non-profit loan centers). Be wary, ask a lot of questions, get everything in writing, read the fine print, ask around to see what other people have been successful doing.

 

[southerndoc]

The only two options I am considering are with the fed government (I have all direct loans) and with Sallie Mae. I'm not even considering the private companies.

 

[micdoc]

To SouthernDoc or anyone else:

Here's my situation- I will be graduating med school may 14th but have received bills for my undergrad loans for which the deferment ends may 14th (i already used my 6 mos grace period). Ideally i want to consolidate in early june to wait till i see the new interest rates but by that time, I have to start paying my undergrad loans and the interest rates on them will increase .6% bumping up my overall loan consolidation interest rate. Would the best option for me to defer these loans (internship/residency) and then consolidate in june? I just wanted to make sure i'm doing the right thing.

Also, among different consolidation companies, the sallie mae one sounds appealing. I came across another company that gives you 3% of the amount rebate (i have around 123,000) so you save around 3700 plus interest over the years. there's also another company THE that gives you .75% decrease from the beginning. what do you guys think of these other options. thanks a million.

 

[nascentdoc]

Yes, it will be a good idea to consolidate your loans. Here's why:

1. There is a lot of discussiona bout making consolidated loans variable rate loans. An AAMC rep stated this may occur as early as the end of this year, but is more likely to occur next year if the government implements it.

2. Consolidating now does not prevent you from reconsolidating later. When you consolidate after medical school or whatever, your loans can be re-consolidated with a weighted average of the interest rate. So if you consolidated your 20k today, it would consolidate at a 2.875% interest rate (provided you consolidate during grace or deferment). If interest is 4.0% when you graduate, and you consolidate 100k of debt, then they will compute the consolidated loan interest rate at 100k x.04 + 20k x 0.02875. So you're sure to lose if you don't consolidate because it's unlikely that interest rates will remain this low throughout your professional school.

Now, here is some very important info:

1. DO NOT CONSOLIDATE PRIOR TO JUNE 1. This cannot be overstated. The Department of Education bases its interest rates on the 91-day Treasury Bill that's auctioned at the end of May. This year's will be released on May 28th. The T-bill plus 1.7% is your interest rate during deferment (includes economic hardship), in-school status, and grace periods. The T-bill plus 2.3% is your interest rate during repayment and forbearance.

2. CONSOLIDATE DURING YOUR GRACE PERIOD, IN-SCHOOL STATUS, OR DURING AN ECONOMIC HARDSHIP DEFERMENT. Do not wait until you are in forbearance or repayment before consolidating. If you do, your fixed, consolidated interest rate will increase by 0.6% points. For example, if you consolidated today while in school, deferment, or in a grace period, your interest rate would be 2.875% fixed for the life of the loan. If you consolidated today during forbearance or repayment, your interest rate would be 3.525%.

3. Why are the numbers above different than your current interest rates? Because when you consolidate, your interest rate is rounded up to the nearest 1/8th percent.

4. Again, I cannot overemphasize the importance of waiting until the end of May to see what interest rates are going to do. Currently the 91-day T-bill is being auctioned at 0.9%, which means you'll see your interest rates drop by .2% if you wait to consolidate. If the 91-day T-bill goes up above 1.1%, then you have until June 30 to consolidate to keep today's interest rate (since the next interest rate doesn't go into effect until July 1). So basically you have 30 days to see if you get a lower interest rate or not.

5. If interest rates are lower or remain the same, you can probably wait to consolidate so long as you are planning on going to a professional school or will qualify for economic hardship. When the government decides to go to variable rate consolidated loans, then they are likely to announce this. It's not going to be a surprise. There will be a lead-in period.

For more info, check out the MEDLOANS section of the AAMC's website at www.aamc.org/medloans

Hope this helps! (Sorry for the long post!)

This is some great info. Thanks. I was wandering if you could help me with another dilema. I've been in repayment of my undergrad loans since last december (I graduated in may). I have loans from two different lenders and I'm thinking about consolidation. Should I wait until august when I start med school and these loans are in defferremet? Thanks in advance.
nascent

 

[mellantro]

This is some great info. Thanks. I was wandering if you could help me with another dilema. I've been in repayment of my undergrad loans since last december (I graduated in may). I have loans from two different lenders and I'm thinking about consolidation. Should I wait until august when I start med school and these loans are in defferremet? Thanks in advance.
nascent

this is exactly the question I need an answer too! i'm in the same situation, nascent

 

[mpp]

Check with the lender. If your rate will go down while in deferment (which it usually does for Stafford loans...repayment rate is higher than in-school rate) then you should wait. However, it is likely that loan rates will go up beginning July 1. You might want to consolidate before then. Figure out which would be the lower rate. Consolidation averages the rates of all your loans.