Consolidating graduate plus loans

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Direct Parent PLUS loans are eligible for Public Service Loan Forgiveness, but not really.Because Parent PLUS loans cannot be repaid under either Income-Based Repayment or Income-Contingent Repayment, you can’t actually make payments on a Parent PLUS loan that count towards Public Service Loan Forgiveness, unless you pay under the Standard 10-year Repayment plan, which won’t leave anything left to forgive.But that doesn’t mean consolidation is always a smart move.Here are four things to consider before you make the leap.Borrowers who graduated before 2010, when the government shifted to Direct Loans, for example, need to consolidate their loans to access the latest income-driven plan, Revised Pay As You Earn.Parent PLUS borrowers most consolidate their loans into the federal Direct Loan program if they want to enroll in the only earnings-based plan available to them, income-contingent repayment.NEWSLETTER: COLLEGE_PLANNERSign up for COLLEGE_PLANNER and more View Sample 1. One of the myths of consolidation is that it makes your debt less expensive by lowering your interest rate.Historically, that may have been accurate, since consolidation was often used as a way to lock in a low interest rate on variable-rate loans, says financial aid expert Mark Kantrowitz.

Consolidation is often the first step borrowers must take to enroll in some of the government’s more flexible repayment plans, including income-driven plans, many of which are restricted to borrowers with Direct Loans.Consolidation also opens up the door to extended repayment plans, in which your term can stretch up to 30 years depending on how much debt you have.Consolidation doesn’t always work to your benefit, however.So, for a simplified example, if you have two loans, one for ,000 at 4% interest and one for ,000 at 6%, your consolidated loan will have a ,000 balance and a 4.7% interest rate.By combining your interest rates, you also lose the ability to employ a favorite tactic of financial planners for paying down debt: targeting the most expensive debt, the loan with the highest interest rate, first.College students can take out new loans each year they’re in school, so by the time graduation comes, it’s common to have half a dozen, or more, individual loans.

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