What are reasons to consolidate your student loans when you graduate? (part 5 and final post of student loan series)
If you are planning to 1) pay off your student loans as quickly as possible or 2) planning to go for PSLF then consolidation is likely for you!
Loan consolidation is when all your government loans are combined and the new interest rate on the loan is the average of your previous interest rates.
The great thing is when you sign up for autopay on your loan, you get an extra 0.25% decrease on your interest rate. So, if your interest rate was 6% after consolidating, like mine was, it really is 5.75%. Furthermore, Braden and I chose REPAYE, and as we discussed previously, REPAYE pays half your unpaid interest each month. Thus, with my $0 payment each month, my effective interest rate is slightly less than 3%.
We chose to consolidate our loans because the grace period is the worst. It is six months where your interest grows on your loans, you do not make payments, and at the end of that time period your interest is capitalized. So 1) your principal is now larger and 2) you pay more in interest each month.
Consolidating is great for PSLF because the name of the game is 120 qualifying payments. If you consolidate your loans you get 6 extra payments of $0 (if you filed your taxes during fourth year like you should). Since you consolidated and skipped the grace period, that is 6 less payments you need to make as an attending.
Consolidating is also for you if you are planning to pay off your loans quickly. You aren’t going to be paying toward your highest interest loan during residency that often, simply because keeping up with interest is a difficult task. Furthermore, we plan to refinance once we become attendings and therefore would not need to attack our highest interest loan (because it will all be refinanced to a lower interest rate).
All in all, we have saved ourselves around $12,000 in interest which would have been capitalized on at the end of the grace period. Furthermore, REPAYE has paid $650/month in interest for me the last 3 months and Braden has a similar story. By consolidating our loans we have saved a ton of money!
You can calculate your personal numbers and see if you agree with me. Regardless, I’m really happy with our decision. Links for further reading below!
http://www.finaid.org/loans/graceperiodloophole.phtml
Couple of Surgeons 