Which Student Loans Should Be Consolidated?

In most cases, consolidating student loans is an ideal option for lowering monthly payments and consistent, predicable monthly payments. The biggest attraction of consolidating student loans is locking in a fixed interest rate and gaining freedom from the government’s fluctuating variable interest rates. However, not every student loan is perfectly suited for consolidation. Each different type of student loan has different qualities that should be weighed when consideration whether to include them when consolidating student loans.

The Stafford Loan – Ideal for consolidation

Stafford loans are the most popular type of loan and ideal for student loan consolidation. The Stafford loan is a variable interest rate loan, meaning that every July 1st when the government implements the new rate changes, the amount of your Stafford loan payment will change. No matter how long ago the loan was written, the payments continue to fluctuate for as long as payments are due.

Consolidating student loans with variable interest rates can reduce payments up to 63% through a combination of a low fixed interest and an extended repayment period. Stafford loans offer forgiveness programs for those in certain professions, particularly teachers. If you’re considering consolidating student loans, you’ll want to verify that you won’t lose this benefit if you’re eligible.Before consolidating student loans, check to see if your profession or volunteer group makes you eligible for student loan forgiveness.

The Perkins Loan – Consider the current interest rate before consolidating

Unlike the Stafford Loan, the Perkins Loan is a fixed rate loan and not subject to rate fluctuations. The interest rate on your Perkins loan will have been determined by the interest rates at the time the loan was issued. If today’s interest rates are lower than the interest rate of the loan, then consolidating student loans with the Perkins loan included is a good option.

However, if the interest rate today is higher than it was at the time your loan was issued, you will pay more over the course of the repayment period to include the Perkins when consolidating student loans. For some borrowers, the benefit of one low monthly payment is more important than saving a few dollars over the course of 10 years. ScholarPoint loan specialists can help you compare the cost with or without the Perkins Loan included so that you can make the choice that is best for you when consolidating student loans.

The PLUS Loan – Ideal for Consolidation

The PLUS loan is another variable interest rate loan that fluctuates with the current government interest rates. PLUS loans generally have a higher interest rate than Stafford Loans so when rates increase the interest payments are even more significant.

Until July 1st 2006, PLUS loans were only for parents. Because the loan is written in the parent’s name, it cannot be consolidated with the student’s loan. However, multiple PLUS loans can be combined when consolidating student loans. Changes in 2006 will allow graduate students to take out PLUS loans in their own names.

HPSL Loan – Ask questions about deferment before consolidating

Like the Perkins Loan, the HPSL (Health Professions Student Loan) has a fixed rate of interest. The HPSL loan also has some deferment options that consolidating student loans could eliminate.

The HPSL loan is specifically designed to meet the needs of those in the health care industry. The loan allows the borrower to defer payments for the first 3 years after graduation while in residency. If you have an HPSL loan, contact the lender you are considering to find out if your deferment options will carry on after consolidating student loans.

Direct Loans – Ideal for consolidation

If you received the balance of your student loan check directly from your school’s financial aid office, then your school most likely participates in the Direct Loan program. If this is the case, consolidating student loans must first be done through the Direct Loan program before shopping around for your choice of student loan refinancing lender.

Before July 1st 2006, borrowers had the option to shop around for a lender when comparing options for consolidating student loans. After July 1st, Direct Loan borrowers will face more restrictions when it comes to choosing a lender. Borrowers will now only have the freedom to switch lenders in cases where the Direct Loans refinance lender does not offer an income-sensitive repayment option.

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