If you're not sure whether or not to consolidate your student loans, think about this: every college loan is different, and not all of them may be good candidates for consolidation. Most of the time, consolidating your student loans is a great way to lower your monthly payments, lock in low interest rates, and get opportunities from your lender to pay down your loan balance. When you consolidate your student loans, you lock in the current interest rate by letting the lender pay back the full amount. You then pay back the lender without having to worry about the government changing the interest rate.
The PLUS loan is a good choice for consolidating student loans.
The PLUS loan (Parent Loan for Undergraduate Students) is a type of federal loan with a variable interest rate, just like many other college loans. This means that when the government changes the interest rates every year, the monthly payment will also change (July 1).
Most of the time, PLUS loans have higher interest rates than other types of college loans. When interest rates go up, this can have a big effect on PLUS loans. Since college loans are combined based on a person's social security number, parents need to apply for PLUS loan consolidation separately.
Perkins Loan: Things to think about before refinancing
The Perkins loan has a fixed interest rate and some special benefits that can be lost if you consolidate your student loans. The Perkins loan has a programme that will forgive all or part of the debt if the borrower works in certain jobs that help the community in a positive way. Some jobs that qualify are teaching in low-income areas, being a nurse, or working as a medical technician.
If you don't qualify for any of the Perkins loan's loan forgiveness options, there is still one more thing to think about. Because the interest rate on a Perkins loan is fixed and the interest rate on a consolidated student loan is based on the weighted average of the other loans, you could end up paying a small amount more over time on a consolidated Perkins loan.
Stafford loans are a good choice for consolidating student loans.
Stafford loans are the most common type of loan, and they are also the ones that people most often choose to combine. Like PLUS loans, Stafford loans have an interest rate that changes over time. This makes refinancing a smart choice. If the right lender is used, loan consolidation can cut the amount you have to pay back by up to 63%.
Like the Perkins Loan, the Stafford Loan has a few programmes that let teachers and people in other public service jobs get their loans paid off. Before you apply to consolidate your student loans, check to see if you qualify for any programmes that will forgive your debt.
Think about your Health Professions Student Loan (HPSL) before you refinance.
Like the Perkins Loan, the HPSL loan for medical professionals has a fixed interest rate. Some of the HPSL's options for deferring payments may be lost after consolidation.
The HPSL gives medical professionals a break during residency by giving them a 3-year deferment period. This option to put off payments could be lost after consolidation, but it might not be. People with HPSL college loans should talk to different lenders about options for deferment.
Direct loans are a good choice if you want to consolidate your student loans.
Some schools offer Direct Loans, which means that the money given to students does not come from a private lender but directly from the federal government. Borrowers who want these college loans must first consolidate their loans through the Direct Loan programme. After that, they can look for lower interest rates elsewhere.
When borrowers try to combine their Direct Loans after July 1, 2006, they will have to follow a lot more rules. After July 1, borrowers will only be able to switch lenders if their current lender doesn't offer a consolidation plan that takes into account their income.
The Stafford Loan and the PLUS Loan are the two most common types of loans, which is why so many people choose to consolidate their student loans. Many students take out multiple loans for college, and it may not be a good idea to combine them. Not all student loans are the same. It's important to know how each of your loans is different and to work with your lender to figure out which option is best for you.
