Loan Consolidation

[residentdoc8]

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Ok, I'm looking for updated 2013 advice-- but i'm wondering what's the point of loan consolidation when you're going through the IBR route other than making one payment instead of several to different lenders? Since federal loans have a fixed interest rate, consolidated loans are averages of your existing loan interests, so you're not really saving a lot compared to IBR with all the loans not consolidated. Any thoughts on this?

 

[RangerBob]

I think it actually costs a little more, because when you consolidate the interest rates are averaged and rounded up the nearest 8th of a percentage. Also, you lose your ability to pay down higher interest rate loans first, which will be relevant when you graduate residency and make enough that you can make more than the minimum payment (which you would want applied to the higher interest loans first).

The main reason to consolidate is if you have federal loans with multiple services--by consolidating you can bring them all to the same servicer. The one other reason to consolidate is to turn your federal loans into direct loans via the direct consolidation loan, which is eligible for PSLF.

One thing to consider is by consolidating you go into repayment right away.

 

[residentdoc8]

What an unbelievably HELPFUL reply, THANK YOU SO MUCH!!! Everything you've said is absolutely RIGHT from the research that i've gathered-- I hope this is helpful to others going through this as well!

 

[Igor4sugry]

Remember, if you plan to do PSLF you need to apply for IBR each year for 10years. If you have say 4 different lenders you will need to do 4 applications each year and keep track of them. It is just not worth the hassle to keep separate loans.

 

[dpmd]

Actually, if you plan to do PSLF your loans need to be serviced by Direct loans. You can do IBR payments with any lender, but none of those payments will count for PSLF. That would be a reason to consolidate with Direct loans.

 

[dpmd]

Also, if all of your loans are the same interest rate, then consolidation doesn't cost you more. You can also choose which loans to include, so if you have a couple of smaller, high-interest rate loans you can keep them separate (or at least you could back when I consolidated, because that is exactly what I did). That way you have the ease of fewer lenders but can still make early payments on the higher interest rate loans (which you should start doing as early as possible since even a few bucks early on makes a big difference when you start talking about reducing capitalized interest, think of that every time you buy starbucks, or eat a meal out)