Should I consolidate my student loans?

In My Humble Opinion
1

I borrowed about $50000 during grad school. My deferment ended in November, though I started paying before that. Currently, my loans look like this:

Under the standard repayment plan my total minimum payment is $587.54. I am currently paying $887.54 per month, though I could probably up that a bit.

My concern is the interest rates; I understand that 6-7% isn’t awful for what is essentially an unsecured debt. I have good (not great) credit, though; my FICO scores are in the 750-760 range.

AIUI, the downside of private loan consolidation is that I won’t be able to request hardship deferrals and the like if something bad happens. I also still wouldn’t be able to discharge the loans in bankruptcy, except in rare circumstances.

The only upside, as I see it, is potentially lower interest rates.

My job is pretty secure, as is my wife’s. What else do I need to consider?

2

Any chance that you may work for the government or an NGO? The public service loan forgiveness program would be hard to give up.

3

Not exactly sure what your plans are, but a fundamental rule that killed many, many homeowners in the BoomCrash was this: Never, ever swap unsecured debt for secured. Millions of people rolled their unsecured credit card and other debt into 2nds… and ended up losing their house unnecessarily.

I’d probably leave it alone. Reducing the payments by a smallish amount is worth less than the overall protections of the current loans. IMVHO. Also, consider paying minimums on the “best” loans and throwing your extra at the single worst remaining. Try to reduce the number of loans as quickly as you can, perhaps over reducing the overall total/payment (although the two would be closely linked, of course). I think paying off one loan at a time will be more effective reduction in the load than paying them all down evenly.

4

The public service loan forgiveness program only applies to federal direct loans, not Stafford loans, which the OP has.

5

I seem to recall having consolidated Stafford loans into Federal Direct loans. But I have a terrible memory.

6

Very unlikely. I’m in private practice and I’d be taking a 50% pay cut to take a public service position.

[quote=“Amateur_Barbarian, post:3, topic:721792”]

Not exactly sure what your plans are, but a fundamental rule that killed many, many homeowners in the BoomCrash was this: Never, ever swap unsecured debt for secured. Millions of people rolled their unsecured credit card and other debt into 2nds… and ended up losing their house unnecessarily.
I wasn’t planning to consolidate into a secured loan. For one thing, we bought our house near the peak so we are slightly upside down on it. The refinance offers I’m getting are for unsecured.

I was wondering about this but I can’t just stop making payments on any of them, AIUI.

7

Not what I meant. You seemed to say you were paying extra, in aggregate… I’d direct any extra payment to a single loan (the “worst” one) until it’s paid off, rather than distribute that extra payment.

Or are they all paid from one aggregate payment?

8

Federal Loans also give you the option of income based repayment. This might not be beneficial if your income is high enough.

Out of curiosity, have you looked into the type of interest rate you can get if you consolidate the loans?

9

They are all paid from a single payment, but I think the system will allow me to allocate the extra payments to a particular loan. I can’t believe I didn’t think of doing that before.

IBR is basically for people who can’t afford their minimum payments under the standard DOE payment plan. I don’t have a problem making the minimum payments. I just don’t like the idea of paying 6%+ interest.

The lowest consolidation rate I’ve seen was 3.7%, but that was for an extremely short repayment term, something like 24 months. I couldn’t comfortably stretch my budget to cover that monthly payment.

10

Depends how much wiggle room you have in your finances, and just how stable your employment is. I had a really bad fracture in my leg a few months after finishing grad school, pretty much as soon as I entered repayment - and 2 days before my health insurance on a new job kicked in. I ended up with thousands of dollars in uninsured medical expenses.

The Dept. of Education was very flexible in giving me a couple of brief forbearances. I don’t know that a private lender would have done the same. And I was working the whole time (though I wasn’t exactly making big bucks) - if I’d had a stretch of unemployment, or if I had kids or a spouse to support, or a spouse with his own financial issues - things could have been much worse.

(I consolidated all my student debt, grad and undergrad, into a Federal consolidation loan and did graduated repayment - it was a 20-year schedule, but I paid everything off in ~ 18. It was very helpful in my circumstances, because no way could I have hacked a 10-year repayment schedule.)

11

Yeah, I think you need to set aside your concerns about the interest costs - it’s a small part of the overall picture and the pluses of the government-backed loans are worth a lot more than saving a few hundred a year at the cost of more stringent loan terms and possible deadly defaults.

It’s a long-term loan, but it’s not like a mortgage where a percent over 20 years makes an enormous financial difference.

12

That’s not exactly correct. IBR lowers your payments to 10% of your discretionary income. If that number is higher than what you would pay under the normal repayment plan, then IBR wouldn’t benefit you and you would not qualify.

Some people could still afford the standard payments even if they add up to more than 10% of their discretionary income.

A quick calculation using Google’s mortgage calculator shows that you would save about $6,000 lowering your interest rate from 6% to 4%. This is using a loan amount of $50,000 and a standard 10 year repayment plan.

Is the $6,000 worth losing the protections of a Public Loan? I wouldn’t risk it, not with my current job, and not for savings of about $50 per month.

13

Thanks, guys. I will follow what appears to be the general consensus and leave everything alone.

14

Update: I didn’t consolidate or refinance, and yesterday I PAID OFF THE FINAL LOAN BALANCE! I am free!

15

Congratulations! well-done!

16

How did you pay it off? What were the monthly payments and for how long?

17

Looks like you paid them off about 6 years early. Congratulations on the discipline to do that. In handling debt, many people look for ways to lower payments, extend payment terms, etc. as a means of supporting a lifestyle that they really can’t afford. Good for you!

18

Woo hoo!

19

I realize this is an old post, but I don’t think that’s true. Staffords after 7/1/2010 are Direct, before that under the auspices of Federal Family Education Loan, they can generally be consolidated into the new plan. The OP likely had more of the former, even in 2015.

20

Nothing magical, I’m afraid. I finished law school in May 2014 and started making payments in November.

The standard payments are as described in the OP. I was always paying $300.00 extra per month. Once I started making more money (particularly quarterly bonuses) I started putting as much extra money as possible into the loans. Once I paid off my car in 2017 I increased my scheduled payment to include an extra $350 or so (basically my former car payment).