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A few questions about loan consolidation
March 10, 2016
7:53 pm
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Danny
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Hiya,

So I’ll start off by admitting that I have put this off for too long without doing enough proper research. All my 1st student loan payments are due within the next week and I still have no idea what direction I want to or should take for paying them off. Any advice is greatly appreciated.

When it comes to federal loans, is there any downside/risks at all when it comes to consolidating them? I saw on your “how to” page that this doesn’t actually lower the interest rate. How does this work if there are 2 different interest rates used for my federal loans? Does it average them? Or take the highest rate?

Is there any downside to consolidating my private loans? I have 2, with interest rates of 5.75% and 6%. The way I see it, it doesn’t appear to me there is any downside if I can find a company that offers me a lower interest rate. Am I missing anything?

If I wanted to consolidate all my loans into a private loan, what are the potential risks/downsides besides losing the perks that come with federal loans?

My payments as is currently sit around 950 a month (I also have 2 parent plus loans I did not mention). I’m really unsure what direction I want to go with on this issue so once again any advice is very much appreciated. Thank you.

March 10, 2016
8:57 pm
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Indiana
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Federal consolidation can be a bit of a headache, but I’ve never really seen a huge downside absent a huge mistake being made (such as including a parent plus loan inside the consolidated loan). This is the type of thing to double check with your loan servicer though, because you never know for sure until you get confirmation.

As for the consolidated loan interest rate, they take the weighted average of your loan and round it up to the nearest quarter of a percent. This is so that people come out pretty much exactly the same if they consolidate. The one downside from the borrower perspective is that it prevents you the opportunity from paying off the high interest loans first. In that sense it could cost a little extra in the long run.

As for the private loans, consolidation with a private lender can be a great way to lower your interest rates. The downside comes in dealing with a new lender and new terms. Ideally they improve, but if you are not careful, you could make things worse. We try to keep an eye on the different lenders out there, so our review page may be of some use to you: https://studentloansherpa.com/student-loan-reviews/

Consolidating the federal loans into a private loan does come with risks, including losing the federal perks. This subject is discussed in more detail here: https://studentloansherpa.com/consolidate-federal-loans-private-loan/

Hopefully these articles are of some assistance and get you thinking about your different options. Good luck!

April 4, 2016
7:07 pm
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Danny
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Hi Michael,

Thank you for the response. I have one other question for you. You mentioned it was a mistake to consolidate the parent plus loans into my direct consolidation loan. Would it also be a mistake to consolidate the 2 loans together by themselves? Are there any differences/drawbacks from that compared to consolidating the loans under my name together?

Thanks again for all your help.

Danny

April 4, 2016
9:30 pm
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Indiana
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I’m a little confused by your question. Are you referring to consolidating the two private loans you mentioned? Or are you talking about combining parent plus loans with other federal loans in a direct consolidation?

April 4, 2016
9:47 pm
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Danny
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Sorry for the confusion. I have 2 parent plus loans. Would it be a mistake to consolidate them together?

April 4, 2016
9:52 pm
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Indiana
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Nothing that immediately comes to mind. The big danger with combining a standard federal loan with a parent plus loans is that the standard federal loan loses its eligibility for repayment plans such as IBR or PAYE.

If you have two parent plus loans, they have the same eligibility to different programs, so there should not be an issue with combining them.

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