From Our Forums: Consolidation Question Quartet!

There was a great question in our loan consolidation forum this week from a new user with lots of loans from medical school. James recently finished his Master’s degree as a physician assistant (congratulations!) and wrote to us looking for some consolidation advice:

I have the following types of federal loans:
Subsidized Stafford
Unsubsidized Stafford
Grad PLUS
Previously consolidated federal loans from my Bachelor’s in Nursing (‘97-’01)

My questions are as follows:
Can I consolidate the above 4 types of loans together?
When should I consolidate? Before or after July 1st? Does it matter? (Grad school was from 8/07 – 12/09)
Who can consolidate? Are there any options now other then the federal government? Will there be lower interest options in the future?
I’ve read about the PLUS loan loophole. Should I consolidate my PLUS loans separately to save 0.25%?


Question 1: Can I Consolidate the 4 types of loans together?

Absolutely, through the Direct Loan Consolidation Program. Since the loans described are all federal student loan products, you can opt to consolidate them together through the Department of Education.

Question 2: When should I consolidate?

This question could go a number of different ways. Due to the fact that he finished school in December 2009, he is now almost 5 months into his grace period (6 months total) before his student loans enter repayment. Consolidation can take anywhere up to 45 days to complete (though usually is less), so logic would dictate that he should start the process soon.

I recommended that he begin his loan consolidation in early-mid May to take advantage of the grace period as long as possible. As soon as the consolidation is completed, the new loan immediately goes into repayment… so if you have time left that you don’t need to be making payments, take advantage of it and make a savings account or use the money elsewhere.

Question 3: Who can consolidate?

At this time, the only entity that is authorized to perform federal loan consolidations is the Department of Education’s Direct Loan Program. In the past, other banks and institutions were allowed to do this, but regulations and reform ended the practice.

As far as lower interest options in the future… who’s to say? My professional opinion is biased toward a yes answer due to the aggressive legislation happening in Congress, but the next question would be “when?”. As the popular adage goes, “Hindsight is 20/20.” My best recommendation is to take advantage of what is available on the market now and create a solid plan for paying down your debt.

Question 4: Consolidate PLUS loans separately?

This really depends on how many of them you have and if your PLUS loan debt is significantly higher than your Stafford/Perkins debt. If yes, then it might be a good idea to keep them separate and therefore not drastically increase the interest that would be paid on your other, lower interest loans. That being said, the point of a consolidation is to cut your bills down to one and make payments more affordable, isn’t it?

Keep in mind that when the interest rate is calculated for your consolidation, it is taken based on a weighted average of your current loan interest rates, not to exceed 8.25%. If the PLUS loans make up the highest debt volume, it might make sense to keep them separate.