Consolidating student loans before 7 1
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.
Consolidating starts that clock over, so if you’ve been in an income-based repayment plan for five years and plan to stay in that plan until you hit forgiveness in another two decades, it’s not generally worth it to consolidate. Federal consolidation and private refinancing are very different.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.Borrowers can save money on their student loans by accelerating repayment of the loans by making extra payments.There are no prepayment penalties on federal and private student loans, so nothing stops the borrower from accelerating repayment of the debt.