Should I consolidate all my student loans?

[BrokeStudent2010]

Hi,

I have a Direct Loan of about $17,000 at 2.75% interest; Stafford loans totaling about $40,000 at 6.8% interest; and GradPlus loans totaling about $50,000 at 8.5% interest. I would like to enroll in the Income Based Repayment program and eventually take advantage of Public Service Loan Forgiveness after making 120 timely payment. But I am seeking advice on whether I should consolidate all of these loans or leave the Direct Loan out of the consolidation to preserve its low interest rate.

I used the complimentary loan calculator on the Direct Loan Consolidation website and when I consolidated all three types of loans my new interest rate was about 6.5%. I am concerned that by significantly raising the interest rate from 2.76% to 6.5% on the Direct Loan I will be paying too much on that account. However, the fact that the Direct Loan can bring down the interest 2 percentage points on the $50,000 GradPlus loan is tempting.  When I calculate the new interest from only consolidating the Stafford and GradPlus loans, the interest rate averages around 7.25%, which still lowers the GradPlus, but increases the Stafford by almost 0.50%.

So, the questions is, whether raising the interest on the Direct Loan is worth it to bring down the interest on the other two larger loans? Or should I just consolidate the Stafford and GradPlus, but leave the Direct Loan alone?

Thanks for your help.

BrokeStudent2010

[Tazman81]

Based on your loan amounts, I would consolidate all of the loans into 1 since you saw a significant drop in that 8.5% interest rate.  This should allow you to pay less interest over the long run, than just paying your loans separately.

[Peach8321]

Normally, I'd say leave the low one out of it but since it is your lowest amount as well, you might benefit more to raise the interest rate on it to lower the interest rate on the bigger loans.  The only reason not to do this is if you expected to be able to pay them off quickly but because you hope to do forgiveness I assume you do not plan on paying them off so in that case....

Calculate your monthly payment only consolidating the two higher rates + the cost of the lower loan (ie payment 1 = $1000 and payment 2 = $350)

Calculate your monthly payment with all three combined (ie payment 1 = $1275)

(note I made up these numbers!!)  Then pick whichever yields you a lower monthly payment.....

Also, if one of them is a variable rate, make sure to consolidate that one!

Good luck!

[BrokeStudent2010]

Thanks you guys. I think that consolidating all of them might be my best option also because I will have just one payment to think about, which is likely going to be less than each payment from the various types of loans, Direct, GradPlus, and Stafford. None of the loans have variable interest rates, thankfully they are all fixed rates. I can't imagine what I'd do if they would go any higher. Yikes!

[Tazman81]

Oh, one more thing to think about.  Would all of these loans qualify for the loan forgiveness program?  Also, what is the max amount that can/will be forgiven?  that will assist you in your decision because if one of the loans does NOT qualify to be forgiven, I would leave it out of the consolidation, and then pay it separately so that you can pay more money on that loan to get it paid off faster.

sorry for all the moving parts to this one, but I just thought about this.