Consolidating student loans interest
Discounts reduce the amount of interest you pay over the life of the loan.The automatic payment discount may not change your monthly payment amount depending on the type of loan you receive, but may reduce the number of payments or reduce the amount of your final payment.
A cosigner is someone who shares responsibility with the borrower for repaying the loan.For example, if you have Parent PLUS loans for a child and individual loans that you took out for your own education, you shouldn’t consolidate them, says Adam Minsky, a lawyer in Boston who specializes in student debt.That’s because Parent PLUS loans are not eligible for several types of income-driven repayment, and they carry that restriction with them in a consolidation, causing your student loans to lose those options, as well. Consolidation can affect your eligibility for forgiveness.What’s more, consolidation typically results in the borrower paying more in total interest because consolidated loans are generally stretched out over a longer period, says Jessica Ferastoaru, a student loan counselor with Take Charge America. Consolidation usually gives you more repayment options, but it can limit them too.Consolidation is often the first step borrowers must take to enroll in some of the government’s more flexible repayment plans, including income-driven plans, many of which are restricted to borrowers with Direct Loans.But that hasn’t been the case for the past decade, since the government stopped issuing student loans with variable rates.
If you consolidate your loans now, your new rate will be based on a weighted average of all your loans’ interest rates.
NEWSLETTER: COLLEGE_PLANNERSign up for COLLEGE_PLANNER and more View Sample 1. One of the myths of consolidation is that it makes your debt less expensive by lowering your interest rate.
Historically, that may have been accurate, since consolidation was often used as a way to lock in a low interest rate on variable-rate loans, says financial aid expert Mark Kantrowitz.
Once you leave the federal program, you can’t return and are no longer eligible for one of its income-driven repayment plans.
Private consolidation is a completely different story, though.
In that instance you’re essentially finding a private lender that will refinance your private loans.