Graduating in May - Direct Consolidation?

[MACFRME]

Hello: I was wondering if anyone here has recently done the Direct Consolidation program? What are the pros/cons? None of my payments are going to start coming due until November, and I am wondering if consolidation might be something to consider. They are all Direct Subsidized and Direct Unsubsidized loans. The balance is about $30,500. $9,500 of that is sitting at 6.8%, while the rest of it is about half $3.4% and 3.86%, respectively.

As I understand it, Direct consolidation automatically would convert all of my student loans to the 6.8% rate?

I put my loans into the "official" repayment plan calculator,a dn it said they would run $320 a month on the fixed plan. I have about 6 individual loans that are handled by the same servicer, Great Lakes. I am unsure what the repayment will look like. Will they treat them all as one account, to which I make a single payment? Thanks in advance for the help. I am just confused about how to plan my repayment.

[Anonymous]

Me too ! Congratulations , I graduate in May and had similar question. I have eight semesters of student loans reporting. I am wondering what is the downside , if they can never charge more than the original payment a month . It may be that 6% interest rate overall and the length of time. My total payments were 500$ a month. I'll be watching your post .

[scvbd99]

Direct Loan Consolidation uses the weighted average interest rate of all the loans you're consolidating.  

A little under half of my 18 tradelines that I consolidated were at 6.8%, and a little more than half were at 2.35%.  The weighted average ended up being about 4.3% for my consolidation loan.  

In short, consolidating won't have any effect on your total monthly payment for your loans, no matter which repayment program you choose.   The main benifit of consolidation is that it puts the loans into one tradeline, which makes it easier to keep track of payments.   Also, depending on the type of loans you have (FFEL program or Direct Program), consolidation may be required if you want to get Public Service Loan Forgiveness.  

[Anonymous]

Do you think it hurt or helped your score .  We are in close to the same situation.  Did you do the IBR as well ?  

[Anonymous]

I have decided that there are no real cons to consolidating 8 Federal  Direct Student Loans to the income based plan,  because althought the average interest rate is a little higher  (6.1%) , I still have the ability to pay more earlier. It would drop the standard payment from $500 to $ 62 .   Also , I havent found any information that suggests this would hurt my credit in anyway.  My question is , I have a pre 2005 consolidated FFLP loan  (21 K ) through Sallie Mae that is fixed at 3.75 %  20 years , $ 141 a month. I can add this to the consolidation but I am wondering if I should just leave this alone?

[Travis-84]

I can think of one downside to consolidation, and that is that if you make an extra payment, it goes evenly to all loans, since you have one weighted interest rate. 

I was in a similar situation.  I had about 5k in loans at around 3% or 4.5%, and 12k at 6.8%.  If I would have consolidated, I would have had my new interest rate calculated, and essentally locked in.  By not consolidating, my effective interest rate dropped every month, I was paying off a higher percent of the high interest rate loan.

Lets assume you owe 9500 at   6.8%, and 20k@3.4%.  Your interest rate would be 4.5%

If you wait to consolidate until after you only owed 8k on your 6.8% loan, then consolidated, your interest rate would be 4.375%.  Not a huge savings, over the life of a 30k loan it adds up.  Of course if you never consolidated, and paid off that 9k loan in a few years, your interest rate would be 4.5% if you never consolidated.  If you consolidate you are locked in. 

So there are some small disadvantages to consider, but also some nice advantages, so it could go either way.

[trix_r_4_kids]

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@MACFRME wrote:

Hello: I was wondering if anyone here has recently done the Direct Consolidation program? What are the pros/cons? None of my payments are going to start coming due until November, and I am wondering if consolidation might be something to consider. They are all Direct Subsidized and Direct Unsubsidized loans. The balance is about $30,500. $9,500 of that is sitting at 6.8%, while the rest of it is about half $3.4% and 3.86%, respectively.

As I understand it, Direct consolidation automatically would convert all of my student loans to the 6.8% rate?

I put my loans into the "official" repayment plan calculator,a dn it said they would run $320 a month on the fixed plan. I have about 6 individual loans that are handled by the same servicer, Great Lakes. I am unsure what the repayment will look like. Will they treat them all as one account, to which I make a single payment? Thanks in advance for the help. I am just confused about how to plan my repayment.

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Congratulations on your upcoming graduation!

I've done the direct loan consolidation.  It is relatively painless and it does make it easier to only have 1 payment.  I am currently paying under the IBR plan.

You are correct about the higher interest on the consolidation loan.  If I were you, I'd sit on my grace period through the summer and wait until fall to consolidate.  If you consolidate before then, you will lose your grace period.

[smith5879]

As was mentioned, the biggest downside to consolidating will be the weighted average interest rate. If you don't consolidate, and pay extra towards the pricipal of the highest interest rate loan each month, you'll spend less money in the long run. Now, if you plan on paying the minimum due for the entirety of the loan period then it won't really make a difference. I'm on the 25 year graduated repayment plan and do not want to be paying these things off until I'm 50, so I'm going to be working my way down from the highest interest rate loans to the lowest. Though this plan is on hiatus while I save for a downpayment on a house.

[MACFRME]

Thanks everyone for the information. I have decided not to do it after speaking with my servicer, Great Lakes. They said that it will already be coming my way in the form of a singular bill and payment because all my loans are through them. They also said that they will apply any extra payments to the higher interest rate loans before the lower interest rate ones. Currently, the loans (7 or so) are all reporting as one trade line, so it makes no sense for me to consolidate them credit-wise.

[heyitsyeh]

Fedloan makes paying towards specific loans really easy, and I only have two loans with them (one 20.5k at 6.8% and one 10.25k at 5.4%) so I see no reason to consolidate. As was stated earlier, having the option to pay down the higher interest loan(s) faster than what they require per month means you will save money not consolidating.