Generally, you won’t consolidate federal and private student loans together. Federal loans allow more flexibility and fixed interest rates, where private loans can be variable or fixed and aren’t as flexible with their repayment plans. Depending on the interest rates you received at the time of your loans it may or may not make sense. This article will explore whether to consolidate federal direct and FFEL student loans.
Should I Consolidate My Student Loans?
First and foremost, you never want to miss payments on your student loans. If this problem arises due to the number of separate payments each month, consolidating will simplify it into one payment. Some lenders offer “unified billing” to simplify payments without consolidation.
If the reason you are missing payments is due to affordability, consolidating won’t lower your monthly payments. Direct consolidation loans take the weighted average of all your federal student loans and round the interest rate up by 1/8 of 1%. Therefore, you’ll have a slightly higher interest rate after consolidating than you did before.
If affordability is the culprit for missed payments, consolidation can extend the term of your student loan. By extending the term from 10 years to 20 years, you lower the monthly payment. However, you will end up paying more in interest over time using this strategy.
Am I employed in a public service job?
If you employed in a public service job (police, fire, EMT, government, military, education, 501(c)(3) organization, etc.) you are eligible for the public service loan forgiveness program. By using a direct consolidation loan, you can qualify additional federal loans other than direct loans for this program. In short, the program gives people employed in public service jobs student loan forgiveness after 10 years. Meaning you don’t have to pay the remainder of the balance after 10 years of qualified payments! This can save a lot of money and stress knowing that your loans will be taken care of.
If you want to qualify for this program now or in the future you should submit this form as soon as possible. The form should be submitted annually and every time you switch employers to ensure you remain on track in the program.
You should consolidate your federal student loans for the following reasons:
- Lower monthly payments by extending the repayment term.
- Simplify payments by paying one bill and have missed past payments because of the number of lenders you must keep track of.
- Qualify for public service loan forgiveness program. If you have student loans that aren’t direct loans, they can become qualified by using a direct consolidation loan.
Having a plan in place for your student loans should be a top financial priority. Rather than miss payments, or relinquish benefits, consider whether a direct consolidation loan can help better your financial situation. The loan process is FREE (beware of scammers) and you can begin at studentloans.gov.
If you need help refining a repayment strategy or have questions about your student loans, https://meetme.so/MillennialWealthschedule a free consultation with us today.
Levi Sanchez is a CERTIFIED FINANCIAL PLANNER™, BEHAVIORAL FINANCIAL ADVISOR™ and Co-Founder of Millennial Wealth, a fee-only financial planning firm for young professionals and tech industry employees. He is an avid sports fan, personal finance and investing geek, and enjoys a great TV show or movie. His mission is to help educate his generation about better money habits and provide financial planning services to those who want to start planning for their future today!