HELP: To consolidate direct loans or not

[samurai2010]

I graduated med school in May with about $240K in Direct Loans (about $38K is subsidized) and will soon be entering IBR plan with the hope of PSLF. I'm PGY1 and will likely make $400-500/month in repayments.

Now I understand that I stand to benefit about $2500 in yearly interest subsidy for the subsidized loans with IBR. This subsidy is good for 3 years. If I consolidate my loans, I will lose that interest subsidy benefit.

However, if I consolidate my Direct loans down the road (i.e. applying for a home mortgage, which I have no plans at the moment), I was told that my PSLF qualifying payment counts will reset, even though all my existing loans are Direct.

Question is: Should I consolidate now? Why are you guys consolidating your direct loans?

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[RangerBob]

When you consolidate, your subsidized loans stay subsidized. They just get put into a "subsidized consolidation loan" that is technically one loan along with the unsubsidized portion, but it will be listed separately. The government will still cover unpaid subsidized interest that accrues.

If you consolidate down the road you do lose the credit earned towards PSLF because the consolidation is a brand new loan, with new terms. But if you were going to consolidate, why would you wait? I don't see how a home mortgage changes anything--your credit report will still say you owe the same amount.

Why do you want to consolidate? In my mind there are only two reasons to do it--one is if your loans are spread out among multiple lenders, the other is if you have FFELP (non-direct) loans that you want brought into the direct lone program so you get PSLF credit and eligibility with those loans (in the small event PSLF is still intact in 10 years...). I guess FFELP loans also aren't eligible for PAYE, so that could be another reason to consolidate. But remember your interest rate gets rounded up the nearest eight of a percent, so consolidating actually costs you a little more in the end.

I consolidated only 3 of my loans (all my first-year loans) so all my loans would be direct loans. I consolidated them right at the start of repayment, so now all my loans are PSLF-eligible. I'm not confident PSLF will stick around, but if it does I'd like to take advantage of it. One other benefit of my consolidation is the government is actually subsidizing a tiny bit more of my interest, because my subsidized consolidation loan rate is based on the overall consolidation loan's rate (sub + unsub), and when you consolidate a small 6.8% stafford loan along with a big 7.9% FFELP GradPlus, it brings the rate up on the subsidized portion.

The big disadvantage (and reason I didn't consolidate all my loans together) other than the interest rate being rounded up is you can't selectively pay off high-interest loans (ie., I can't pay off that 7.9% GradPlus loan first to save the most money--it's now gone, along with my stafford loans from M1, and replaced with a ~7.3% consolidation loan).

Just things to think about--sometimes consolidating is the way to go, sometimes it isn't.