debt consolidation

[Kitra101]

Does anyone know if there are places where we can consolidate our debt at a lower rate than if we do it with the government? It seems like that is all thats available now and in order to consolidate with the government, we will have to tack on a quarter of a percent after taking the mean (which has been locked in at 6.8%) despite the fact that rates are lower right now. I have talked with residents who were able to lock in rates as low as 3-4. I would at the very least like to consolidate at the same rate if not somewhat lower and consolidating with the government only to increase the rate seems crazy to me. Anyone know something about this?

Thanks

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[pem8erly]

If you're still in school, I don't believe you can consolidate at this time. I remember a financial aid officer telling my class that they put in new rules to restrict consolidating while in school because students didn't realize that once you consolidate the grace periods for repayment change and ended up needing to start repayment sooner than expected.

Also, when you consolidate federal loans, the interest rate is weighted base on how much loan you have out at certain interest rates. If all your loans are at 6.8% then it will still be 6.8% after consolidation.

Private loans are a different story and I'm not familiar with consolidating those.

 

[IDforMe]

Along those same lines, I'm about to graduate and am not the most savvy person when it comes to finances.

I've been thinking that I should consolidate my loans 2 separate times consecutively: once for everything at 6.8% (I'm considering throwing the perkins loans at 5% in here too just for simplicity in monthly payments.) and once for my 8.5% GRAD PLUS loans. I've been told since the consolidation cap is 8.25% this will save me a bit of interest as these loans would then have a slightly lower percentage rate.

I was wondering if some of you money savvy people on the forum here could let me know what the best way to consolidate would be...

I also have a few specific questions:
1.) Could I consolidate a third time and combine my GRAD PLUS and other loans? Would this have any benefits (other than making easy to make payments to one servicer) or would this increase significantly the amount I'd be paying in the long term?
2.) Is there any reason I should keep my Perkins loan separate and not consolidate it?

Other important info: I'm planning on paying my loans off through the Public Service Forgiveness Program, which means I have to consolidate to make my loans eligible for cancellation at the end of ten years and that I'll be paying on the Income Based Repayment schedule during residency.

Thanks in advance for your input, it's greatly appreciated!
-IDforMe

 

[MDInvestor]

The days of 2-5% interest rate consolidation are over. Consolidation at this point will turn your 4 (1 for each year) loans at 6.8% into one combined loan at 6.8%. Most of the perks that were promised by your lenders might be pulled back. Therefore, the only realistic benefit is slight simplicity of one bill.

I think the Class of 2009 was the last to be able to defer and consolidate at low rates. Maybe Class of 2008, I can't remember. Either way, Class of 2010 and so on, you're pretty much stuck with the 6.8% rate (- any incentive your lender gives you.. ie. -.25% for 24 consecutive payments) or the 8.5% PLUS loan rate.

There are some other options using some financial engineering but most of them require you to leverage your equity in your home to take out loans to pay off high interest loans..

If you are worried about it, simple answer is that after you finish residency, live like a resident for a year and funnel 100K+ into your loans.

 

[babel]

Agree with MDInvestor - the old benefit of getting a lower interest is gone now that the rates are fixed at 6.8-8.5%.

As for multiple consolidation strategies, there's a little info here w/ respect to IBR:
http://www.ibrinfo.org/faq.vp.html
Can I reconsolidate my loans if I’ve consolidated them in the past?
In general, once you consolidate your loans, you can not reconsolidate. However, there are a couple exceptions. If you have Federal Family Education Loans (FFEL) loans—where your lender is a private entity like Sallie Mae or Citibank—you can consolidate into the Direct Loan program to qualify for Public Service Loan Forgiveness, even if you have already consolidated your loans in the FFEL program.
Also, if you are consolidating to obtain either Income-Contingent Repayment (ICR) or Income-Based Repayment because your loan has been submitted to a guaranty agency for default aversion, you can reconsolidate, even if you have previously consolidated. Click here for more information on loan consolidation.

Also, there's a lot of info from the Direct Loan site if you've taken out your loans with them:
https://www.dl.ed.gov/borrower/BorrowerLogin.jsp

 

[johncalvin]

So if I have about $15k in all subsidized Stafford loans from undergrad (lender was Direct Loans Corporation), I shouldn't consolidate that loan into my overall medical school loans (likely lender: Chase).

So I should simply be applying for educational deferment every year on the $15k in loans I'll have from undergrad? I guess that's no problem if it means I end up paying less than (over time) than I would if I were to consolidate.

Btw, if what I wrote is completely off, please do comment! Thanks.

 

[Igor4sugry]

There is no way to consolidate the 6.8% interest rate Gov loans -> they are locked in. The consolidation was possible back in the day because the rate was not fixed and it was low to begin with.

In general consolidation will not save you any money, it simply allows for easier loan management.

The only thing to hope for at this point is some interest rate relief later down the line when we start repaying these things. It is one thing to have 200k dept at 3% versus 200k at 6.8% which is what all of us 2012+ grads will be dealing with.

 

[pem8erly]

So if I have about $15k in all subsidized Stafford loans from undergrad (lender was Direct Loans Corporation), I shouldn't consolidate that loan into my overall medical school loans (likely lender: Chase).

So I should simply be applying for educational deferment every year on the $15k in loans I'll have from undergrad? I guess that's no problem if it means I end up paying less than (over time) than I would if I were to consolidate.

Btw, if what I wrote is completely off, please do comment! Thanks.

You don't need to apply for education deferment. You'll be under "In School Status" under the loan database and they should do it automatically.

 

[IDforMe]

Agree with MDInvestor - the old benefit of getting a lower interest is gone now that the rates are fixed at 6.8-8.5%.

As for multiple consolidation strategies, there's a little info here w/ respect to IBR:
http://www.ibrinfo.org/faq.vp.html
Can I reconsolidate my loans if I’ve consolidated them in the past?
In general, once you consolidate your loans, you can not reconsolidate. However, there are a couple exceptions. If you have Federal Family Education Loans (FFEL) loans—where your lender is a private entity like Sallie Mae or Citibank—you can consolidate into the Direct Loan program to qualify for Public Service Loan Forgiveness, even if you have already consolidated your loans in the FFEL program.
Also, if you are consolidating to obtain either Income-Contingent Repayment (ICR) or Income-Based Repayment because your loan has been submitted to a guaranty agency for default aversion, you can reconsolidate, even if you have previously consolidated. Click here for more information on loan consolidation.

Also, there's a lot of info from the Direct Loan site if you've taken out your loans with them:
https://www.dl.ed.gov/borrower/BorrowerLogin.jsp

Thanks for the info, babel. I'm still a little confused after reading through the information, though. Namely would consolidating my 8.5% Grad plus loans and then consolidating all my other FFEL loans with the now 8.25% Grad plus loans qualify under circumstance #3?

Under new rules passed by Congress in 2006, if you already have a consolidation loan with either FFEL or Direct, you will not be able to “reconsolidate’ with either program, except in limited circumstances.
These circumstances are:

•If you have an eligible loan that was not included in the first consolidation and you include that loan in the new consolidation. The eligible loan could be a new loan you received after the initial consolidation loan. It could also be another consolidation loan, or
•FFEL consolidation borrowers may obtain a Direct consolidation loan if the loan is in default or has been submitted to a guaranty agency for default aversion and if you agree to repay under the Income Contingent Repayment plan or Income Based Repayment.
•You can “re-consolidate” if necessary to participate in the Direct Loan public service forgiveness program. It is a good idea to do this even if you just think that you might want to use the public service cancellation program. The sooner your payments start counting toward the ten year cancellation period, the better.
•Military service members are also allowed to re-consolidate to take advantage of the new limits on interest accrual for Direct Loans.

Also, in terms of MDInvestor's comments, as I'm not expecting to get much in the way on interest reduction incentives... T.H.E. suspended these benefits and I think the only other benefit on some of my loans is a 0.25% reduction for 2 years of on-time payments and using direct withdrawal for monthly payments, is there any big negative for me in consolidating? I already have 6.8% interest rates on my loans (with the exception of a small amount in Perkins loans) or 8.5% with my Grad Plus ones.

Basically, since I'll have to consolidate anyway to enroll in the Public Service Loan Forgiveness Program, I'm trying to figure out the best way to go about this, or if there is some other much better option that I'm overlooking.

Thanks again in advance for your help, everyone!

 

[lee9786]

There is no way to consolidate the 6.8% interest rate Gov loans -> they are locked in. The consolidation was possible back in the day because the rate was not fixed and it was low to begin with.

In general consolidation will not save you any money, it simply allows for easier loan management.

The only thing to hope for at this point is some interest rate relief later down the line when we start repaying these things. It is one thing to have 200k dept at 3% versus 200k at 6.8% which is what all of us 2012+ grads will be dealing with.

From what I understand government loans taken out prior to 2006 were with variable interest rates and everything after is fixed. So if you only have loans after this date then you might not benefit from loan consolidation.

My situation is that I do have loans prior to 2006 that have variable interest rates. I was looking at the possibility of consolidating with intentions of getting them at a fixed rate, but since I still need to take out loans for grad school I wonder if I could/should. I've heard it could affect your ability to get loans at a later date. Anybody know anything about this?

It looks to me that interest rates are going to increase. So it looks like consolidation would be a good option if govt loans were taken out prior to 2006. From what I've read, now's a good time to consolidate because of lower interest rates. They are expected to go up in July. Any thoughts on this? I'm not even sure I consolidation is an option because I still have more school to complete.

 

[johncalvin]

You don't need to apply for education deferment. You'll be under "In School Status" under the loan database and they should do it automatically.

Thanks!

 

[Kitra101]

So let me get this straight:

1. The government made our rates fixed so we cannot lock in available lower rates on the premise that it protects us from inflating rates at a non-fixed rate and thought 6.8 was reasonable?

2. The government thought it would be fair to not only do all that said in number 1, but then if we want the last benefit of consolidation, that is, having a simplified payment going to only one place, we have to increase the rate our our loans?

3. The government wants to keep cutting physician reimbursement year after year?

4. The government does not want to tackle tort reform so premiums for providers continue to rise?

5. In return, the government wants highly intelligent, hard working people to sacrifice their time and energy during their 20s and 30s in order to treat patients on a government plan?

Maybe I am missing something here, but in a compromise, usually each side give up something. What is the government giving up?

 

[pem8erly]

who said there was a compromise?

 

[lee9786]

Something tells me the government doesn't want people to pay down their student loans in the standard ten year plan. With the increased cost and decreased compensation, more people will opt for the the 30 yr payment and end up paying two times the principle in interest. Could it be possible the government is intentionally encouraging the tuition increases through their guaranteed loans in hopes students will pay more into the system in the long run? It does seems like a good way to pay down the national debt.

 

[Dr.Millisevert]

So let me get this straight:

1. The government made our rates fixed so we cannot lock in available lower rates on the premise that it protects us from inflating rates at a non-fixed rate and thought 6.8 was reasonable?

2. The government thought it would be fair to not only do all that said in number 1, but then if we want the last benefit of consolidation, that is, having a simplified payment going to only one place, we have to increase the rate our our loans?

3. The government wants to keep cutting physician reimbursement year after year?

4. The government does not want to tackle tort reform so premiums for providers continue to rise?

5. In return, the government wants highly intelligent, hard working people to sacrifice their time and energy during their 20s and 30s in order to treat patients on a government plan?

Maybe I am missing something here, but in a compromise, usually each side give up something. What is the government giving up?

You could always just repatriate to a new country where medical education is free, liability insurance is cheap, and where residents get paid better including extra pay for after hours and overtime.

 

[IDforMe]

...anybody with some answers?

Thanks for the info, babel. I'm still a little confused after reading through the information, though. Namely would consolidating my 8.5% Grad plus loans and then consolidating all my other FFEL loans with the now 8.25% Grad plus loans qualify under circumstance #3?

"Under new rules passed by Congress in 2006, if you already have a consolidation loan with either FFEL or Direct, you will not be able to “reconsolidate’ with either program, except in limited circumstances.
These circumstances are:

•If you have an eligible loan that was not included in the first consolidation and you include that loan in the new consolidation. The eligible loan could be a new loan you received after the initial consolidation loan. It could also be another consolidation loan, or
•FFEL consolidation borrowers may obtain a Direct consolidation loan if the loan is in default or has been submitted to a guaranty agency for default aversion and if you agree to repay under the Income Contingent Repayment plan or Income Based Repayment.
•You can “re-consolidate” if necessary to participate in the Direct Loan public service forgiveness program. It is a good idea to do this even if you just think that you might want to use the public service cancellation program. The sooner your payments start counting toward the ten year cancellation period, the better.
•Military service members are also allowed to re-consolidate to take advantage of the new limits on interest accrual for Direct Loans."

Also, in terms of MDInvestor's comments, as I'm not expecting to get much in the way on interest reduction incentives... T.H.E. suspended these benefits and I think the only other benefit on some of my loans is a 0.25% reduction for 2 years of on-time payments and using direct withdrawal for monthly payments, is there any big negative for me in consolidating (ie: increased cost)? I already have 6.8% interest rates on my loans (with the exception of a small amount in Perkins loans) or 8.5% with my Grad Plus ones.

Basically, since I'll have to consolidate anyway to enroll in the Public Service Loan Forgiveness Program, I'm trying to figure out the best way to go about this, or if there is some other much better option that I'm overlooking.

Thanks again in advance for your help, everyone!

 

[IDforMe]

...anybody with some answers?

[Q]Quote:
Originally Posted by IDforMe
Thanks for the info, babel. I'm still a little confused after reading through the information, though. Namely would consolidating my 8.5% Grad plus loans and then consolidating all my other FFEL loans with the now 8.25% Grad plus loans qualify under circumstance #3?

"Under new rules passed by Congress in 2006, if you already have a consolidation loan with either FFEL or Direct, you will not be able to “reconsolidate’ with either program, except in limited circumstances.
These circumstances are:

•If you have an eligible loan that was not included in the first consolidation and you include that loan in the new consolidation. The eligible loan could be a new loan you received after the initial consolidation loan. It could also be another consolidation loan, or
•FFEL consolidation borrowers may obtain a Direct consolidation loan if the loan is in default or has been submitted to a guaranty agency for default aversion and if you agree to repay under the Income Contingent Repayment plan or Income Based Repayment.
•You can “re-consolidate” if necessary to participate in the Direct Loan public service forgiveness program. It is a good idea to do this even if you just think that you might want to use the public service cancellation program. The sooner your payments start counting toward the ten year cancellation period, the better.
•Military service members are also allowed to re-consolidate to take advantage of the new limits on interest accrual for Direct Loans."

Also, in terms of MDInvestor's comments, as I'm not expecting to get much in the way on interest reduction incentives... T.H.E. suspended these benefits and I think the only other benefit on some of my loans is a 0.25% reduction for 2 years of on-time payments and using direct withdrawal for monthly payments, is there any big negative for me in consolidating (ie: increased cost)? I already have 6.8% interest rates on my loans (with the exception of a small amount in Perkins loans) or 8.5% with my Grad Plus ones.

Basically, since I'll have to consolidate anyway to enroll in the Public Service Loan Forgiveness Program, I'm trying to figure out the best way to go about this, or if there is some other much better option that I'm overlooking.

Thanks again in advance for your help, everyone! [/Q]