Student Loans- Consolidate or Not?

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karpems
Posts: 170
Joined: Wed Nov 13, 2013 6:35 am

Student Loans- Consolidate or Not?

Post by karpems »

Hey Everyone,

Just want everyone's advice. My loans from college and medical school are coming due next month. Between the eight years of higher education and the crazy loan buying/selling market, I now have twelve separate loans with four service providers(started with one service provider).

The loans range from 2.8-6.8%. My goal is to have everything paid off in 4-5 years.

I have 210k at 6.8%(7 loans)
I have about 55k between 2.8-4.8%(4 loans, but variable rates which change yearly)
I have one loan at 22K at 3.05% variable rate

Just for ease, would anyone consider consolidating to one loan company? It is incredibly difficult to keep track of 11 separate loans. I was offered 5.75% as a consolidation rate for 20 year fixed. The variable rate is about 3.75 but god forbid something happens to me or my salary it might be nice to the option of a long term repayment.

Thanks!
tran_man007
Posts: 51
Joined: Sun Mar 06, 2011 7:36 pm

Re: Student Loans- Consolidate or Not?

Post by tran_man007 »

My wife and I graduated medical school with a fair amount of debt with multiple loans (10-ish) from 3 different providers and it's a bit annoying to keep track of. Before re-financing was an option, I made a spreadsheet and listed each loan with provider, total amount, interest rate, start of repayment, and monthly payment; also I set up autopayment for all of them. All of this helped me keep track of things the loans. Once I set it up, it was all automatic.

Re-financing is a tempting offer, but you lose the death, disability, and education benefit with many of the private companies. If you think you can pay it off in 4-5 years (props to you, curious what specialty you're in), and relatively high 5.75 interest rate that you have, I would consider just keeping the loans and pay back the higher rate ones first. That way you can keep the death, disability benefit while paying only a bit more in total interest.
ubermax
Posts: 1888
Joined: Tue Feb 11, 2014 1:19 pm

Re: Student Loans- Consolidate or Not?

Post by ubermax »

For me I'd look at this as two questions : (1) consolidate or not ? and (2) are the consolidation rates better/worse than the current deal ?

The first would be easy for me , consolidate ; if those variable rates are tied to an index with a cap , I'd assume the worse case scenario and run the numbers on total interest paid unconsolidated vs consolidated on a spreadsheet and see how things shake out - if the interest is close it would tip the scale towards consolidation for me & vice versa if the difference is large , i.e. I'd endure all those loans .

Granted this would take some legwork on your part but for me it would be the best option ; getting opinions here on the forum is OK but I'd need to see the numbers .
campy2010
Posts: 1252
Joined: Sun Nov 28, 2010 4:01 pm

Re: Student Loans- Consolidate or Not?

Post by campy2010 »

ubermax wrote:For me I'd look at this as two questions : (1) consolidate or not ? and (2) are the consolidation rates better/worse than the current deal ?

The first would be easy for me , consolidate ; if those variable rates are tied to an index with a cap , I'd assume the worse case scenario and run the numbers on total interest paid unconsolidated vs consolidated on a spreadsheet and see how things shake out - if the interest is close it would tip the scale towards consolidation for me & vice versa if the difference is large , i.e. I'd endure all those loans .

Granted this would take some legwork on your part but for me it would be the best option ; getting opinions here on the forum is OK but I'd need to see the numbers .
Exactly this. And the two groups of loans can be treated separately. I would consider consolidating/refinancing the 6.8% federal loans a different question from consolidating/refinancing the bundle of lower interest rate private(?) loans.
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: Student Loans- Consolidate or Not?

Post by inbox788 »

karpems wrote:Hey Everyone,

Just want everyone's advice. My loans from college and medical school are coming due next month. Between the eight years of higher education and the crazy loan buying/selling market, I now have twelve separate loans with four service providers(started with one service provider).

The loans range from 2.8-6.8%. My goal is to have everything paid off in 4-5 years.

I have 210k at 6.8%(7 loans)
I have about 55k between 2.8-4.8%(4 loans, but variable rates which change yearly)
I have one loan at 22K at 3.05% variable rate

Just for ease, would anyone consider consolidating to one loan company? It is incredibly difficult to keep track of 11 separate loans. I was offered 5.75% as a consolidation rate for 20 year fixed. The variable rate is about 3.75 but god forbid something happens to me or my salary it might be nice to the option of a long term repayment.

Thanks!
Is the refinance rate constant or dependent on the weighted average of the loans and interest rates?

Re-fiance or consolidate for BETTER rate, not convenience. Managing many loans isn't fun, but you have opportunity to minimize interest (i.e. pay highest rate loans) vs. average rate.

Setup auto payments with minimum payments for all the loans and make additional payments to the worst interest rate account. It's not so bad after it's all set up. The 2.8% and 3.05% loans will likely be the last ones paid off, and that's just 60 payments if you finish in 5 years.
ubermax
Posts: 1888
Joined: Tue Feb 11, 2014 1:19 pm

Re: Student Loans- Consolidate or Not?

Post by ubermax »

inbox788 wrote:Is the refinance rate constant or dependent on the weighted average of the loans and interest rates?

Re-fiance or consolidate for BETTER rate, not convenience. Managing many loans isn't fun, but you have opportunity to minimize interest (i.e. pay highest rate loans) vs. average rate.

Setup auto payments with minimum payments for all the loans and make additional payments to the worst interest rate account. It's not so bad after it's all set up. The 2.8% and 3.05% loans will likely be the last ones paid off, and that's just 60 payments if you finish in 5 years.
+1 good question / good advise

In the OP's case there's a relatively large disparity between both the rate and the loan amount when comparing that big loan to the other smaller loans and so I agree with Inbox regards using the additional payments towards the higher rate loan ; awhile back I was curious if putting additional payments toward the higher rate loan, rather than pro-rata based on outstanding balance of each loan, was always the best decision ; to find out I created a spreadsheet for just two loans - to keep the sheet simple and small I assumed annual payments and a term of just 10 years.

The Sheet is available from my DropBox account below - the top allows for inputs with the larger rate loan second - the top two charts are the pro-rata portion with the bottom charts for the higher rate loan first - if the higher rate loan is paid off , then any leftover or unused portion of the normal payment and/or the additional payment is used for the lower rate loan .

After trying many scenarios it seems as if pro-rata is better than "higher interest loan" first when the loan amounts and interest rates are almost equal .

It's obviously not too helpful to the OP for his current decision but I just thought others may find the spreadsheet interesting ; and I'd appreciate knowing if anyone finds an error .

Spreadsheet Is Here !
Last edited by ubermax on Mon May 18, 2015 7:58 am, edited 1 time in total.
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Student Loans- Consolidate or Not?

Post by Gronnie »

It's not that difficult to track. Between my wife and I we have even more than that. I have everything set on autopay, and update a spreadsheet with balances, etc once a month.
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