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Should You Really Consolidate Student Loans?
If you're pondering whether or not to consolidate student loans, consider this; all college loans have unique attributes, and not all may be perfectly suited for student loan consolidation. Student loan consolidation is, in most cases, an outstanding option for reducing monthly payments, locking in low rates, and earning opportunities to shave money off your loan balance with lender incentives. When you consolidate student loans, you lock in the current interest rate by allowing the lender to repay the entire amount, then repaying the lender free from government interest rate fluctuations. PLUS Loan – Good Choice for Student Loan Consolidation Like many college loans, the PLUS loan (Parent Loan for Undergraduate Students) is a type of federal loan with a variable interest rate. This means that the monthly payment will change when the government reconfigures the interest rates annually (July 1). The interest rates on PLUS loans are generally higher than other types of college loans so when interest rates increase, PLUS loans can be greatly affected.
Since college loans are consolidated by social security number, parents should apply separately for PLUS loan consolidation. Perkins Loan – Consider before refinancing The Perkins loan is a fixed rate loan and has some unique benefits that can be lost with a student loan consolidation. The Perkins loan has a forgiveness program that will waive all or part of the repayment amount if the borrower works in specific occupations that provide a valuable service to the community. Some such eligible occupations are teachers in low income areas, nurses, and medical technicians. If you're not eligible for the various loan forgiveness opportunities offered by the Perkins loan, there is still another point to consider.
Because the Perkins loan is a fixed rate loan, and because the interest rate on a student loan consolidation is determined by the weighted average of the other loans, you could actually pay a small percentage more on a consolidated Perkins loan over time. Stafford Loans – Good Choice for Student Loan Consolidation Stafford loans are the most common loans, and also the most popular type to consolidate. Stafford loans have a variable interest rate like the PLUS loan, making refinancing a smart choice. Loan consolidation can reduce the repayment amount by up to 63% if refinanced through the right lender. Like the Perkins Loan, the Stafford Loan also offers a few forgiveness programs for those in certain teaching positions and other various public service jobs. Check to see if you’re eligible for any forgiveness programs before applying to consolidate student loans. Health Professions Student Loan (HPSL) – Consider before refinancing The HPSL loan for medical professionals is a fixed rate loan like the Perkins Loan. The HPSL comes with certain deferment options that may be lost after consolidation. The HPSL offers a 3 year deferment period designed to give relief to medical professionals during residency. This deferment option may or may not be lost after consolidation.
Those who have HPSL college loans should inquire with various lenders about deferment options. Direct Loans – Good Choice for Student Loan Consolidation Some schools offer Direct Loans, meaning that the money given to students comes directly from the federal government, not through a private lender. Borrowers who obtain these college loans must first consolidate through the Direct Loan program, but then have the opportunity to shop around for lower interest rates. Beginning July 1st 2006, borrowers will face much stricter regulations when consolidating Direct Loans. After the 1st of July, borrowers will only be able to switch lenders if their current lender does not offer a student loan consolidation with an income sensitive repayment plan. The two most popular types of loans are the Stafford Loan and the PLUS Loan which is the reason it’s so popular to consolidate student loans. Many students acquire a variety of college loans that may not be beneficial to consolidate. Student loans are not all created equal. It’s important to understand the unique qualities of your individual loans and work with your lender to determine the option that is right for you.
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