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Student Loans 101: Consolidating Your Public, Private Loans

By William Peacock, Esq. on October 07, 2014 | Last updated on March 21, 2019

What's the biggest problem facing graduates today? It's not the job market, which really, really sucks. It's the massive load of debt which will stalk them for the next few decades, making it difficult to buy a home, go on vacation, or even save for their own kids' college funds. Standard monthly repayments, for someone with six-figure debt, probably top $1,000 per month. If you're not in BigLaw, that's a massive expenditure.

Fortunately, there are options -- so many, in fact, that it's hard to know exactly what to do with your loans. That's why we're going to spend the next few weeks sharing what we've learned (the hard way) about managing student loans, starting with loan consolidation.

Public Loan Consolidation

If you've just recently graduated, you probably have a long list of federal loans: direct, subsidized, unsubsidized, PLUS loans, and more. If you have no idea what loans you have, don't feel bad -- freshman year was a long time ago. The National Student Loan Data System will list every loan you have from every year. And the federal student loan site makes the process as simple as a few clicks. (Note: They've upgraded since I last used the program, so I haven't used the new site -- your experience may differ.)

A federal consolidation loan will simply add up all of your outstanding debt and use the weighted average of your interest rates for the new rate. The federal government has a calculator to show you what impact consolidation will have on your rates and to see what income-based repayment payments may look like when you're done.

The benefit of consolidation is obvious: one monthly payment. The only downside is that you lose the option of paying down the higher interest debt first, thereby saving some cash in the long run. That's more of a consideration for those who are flush with cash, as they have the surplus funds to pay off loans early. If you're on an income-based repayment plan, there is likely no down side to consolidation.

As is the case with anything complicated, it's best to discuss this with a financial planner or CPA before jumping in.

Private Loan Consolidation

This is a much trickier calculation. If you've taken out private loans over the years, you can't simply hit a few buttons on the federal site and have all of your loans auto-magically combined into one mega-albatross. Instead, you'll have to shop around with private lenders to find a favorable interest rate and low to no origination fee.

The interest rate is probably the biggest key. You'll want to look at your current interest rate for each loan and see what you'll be giving up by consolidating. For example, during the "banks are drunken sailors" era, I took out a private student loan at 2.75 percent interest, around 4 percent less than what I see for most private loans nowadays. Consolidating that loan at the new rates would be downright stupid, so I'll have to put up with the extra monthly payment for now.

If you've got a student loan question, shoot us a tweet @FindLawLP and we'll try to include it in one of our upcoming posts.

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