Should I consolidate my student loans? Help!

[yaya2486]

Hi Friends,

I need your advice.. I have some student loans which total to about $40,000. I have received email notifications from them to consolidate my loans by June 30th to take advantage of their low interest rates.

The problem is, I have no idea what consolidating my student loans will do to my credit!! Is it going to make my fico score go down? Will my payments be soo hugely over the top that I can't afford them?  If you have any insight or advice on this topic at all, I'd like you to voice your opinions! Any advice is greatly appreciated!

Yaya

[GST2008]

What type of loans are they and what type of consolidation is it?  I recently consolidated all my loans (totaling over $210k).  They were all federal loans so I qualified for the federal direct loan consolidation.  Consolidating had little to no affect on my CR scores.  It slightly decreased my AAoA as a new account was opened, but other than maybe a point or two, it had no real affect.  Also, they did not do a HP since it was a federal consolidation.

Now that they are consolidated and since I work in the public sector, I qualify for the Public Sector Loan Forgiveness Program and will hopefully get them forgiven in 10 years.  Using this program, I selected Income Based repayment.  They payment amount they quoted me is astromically less than the 10 year repayment amount and much less than half the 30 year repayment amount.  This payment option changes each year based upon your income.  I was able to use my tax return from the year I was only getting paid for my internship so for this year I am paying $94/month versus $1700/month (10 year) or $700/month (30 year).  Next year that payment will probably increase to about $350/month, but far less than the other options.

It is also easier for me as i only have to make one payment, once a month, using one website.  In this situation, I wouldn't worry about FICO so much, and focus more on what will be cheaper and easier for you.  Unless you have the means to pay the loans of quickly, you will be stuck with them accruing interest for a long time.  Focus more on what will make the process of paying them off most adventageous for you.  You'll get the points back quickly, but if you default on the loan, it could stay on your report for 7 years.

[musakluv]

If you have many small installment loans i.e. many small student loans it will affect your score with too many installment loans being open. Consolidation on the other hand will close all except for one which will boost your score once it has completely updated. It will only be about a 15pt increase so weigh interest cost as the bigger picture

[IOBA]

When I had student loans, I organized them on a spreadsheet with balances, interest rates, and minimum payments.

I took EVERYTHING extra I had and applied it to the smallest balance until it was paid off.  (Made minimum payments on all of the other loans.)

I continued this stragety with each of the loans until they were paid off.  I think I paid them off within 18 months or so instead of the 10 yrs scheduled.

Without knowing the balances, I don't know if this stragety would work for you.   Something to consider, along side doing a consolidation.

[Anonymous]

I can only speak from my experience and I rue the day I consolidated my loans. It reduced my payment (just by turning two payments into one) and, I think, it lowered my interest; but between the loan term being extended in the consolidation and my having had to go into foreberance a few times due to job losses, etc. The end result has been my paying on loans for twelve years and almost every penny has gone to interest. My principle has only been reduced 4,000 (out of 30,000) in 12 years! I believe I've paid about $26,000 in interest. While I recognize part of my problem has been the forbearance, according to my calculations even without the forbearance, the consolidation process itself increased my interest significantly by increasing the term and reducing the payment. While I can't speak authoritatively speak to whether it's a good idea for you, in my case - I'd give most anything to be able to go back and NOT consolidate.

[Anonymous]

Consolidating is mostly good for those who qualify for IBR and who works in Public Service.  I feel fortunate!!