Should You Really Consolidate Student Loans?

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If you"re pondering whether or not to consolidate student  loans , consider this; all college  loans  have unique attributes, and not all may be perfectly suited for student  loan  consolidation. Student  loan  consolidation is, in most cases, an outstanding option for reducing monthly payments, locking in low rates, and earning opportunities to shave money off your  loan  balance with lender incentives. When you consolidate student  loans , you lock in the current interest rate by allowing the lender to repay the entire amount, then repaying the lender free from government interest rate fluctuations.

PLUS  Loan  - Good Choice for Student  Loan  Consolidation

Like many college  loans , the PLUS  loan  (Parent  Loan  for Undergraduate Students) is a type of federal  loan  with a variable interest rate. This means that the monthly payment will change when the government reconfigures the interest rates annually (July 1).

The interest rates on PLUS  loans  are generally higher than other types of college  loans  so when interest rates increase, PLUS  loans  can be greatly affected. Since college  loans  are consolidated by social security number, parents should apply separately for PLUS  loan  consolidation.

Perkins  Loan  - Consider before refinancing

The Perkins  loan  is a fixed rate  loan  and has some unique benefits that can be lost with a student  loan  consolidation. The Perkins  loan  has a forgiveness program that will waive all or part of the repayment amount if the borrower works in specific occupations that provide a valuable service to the community. Some such eligible occupations are teachers in low income areas, nurses, and medical technicians.

If you"re not eligible for the various  loan  forgiveness opportunities offered by the Perkins  loan , there is still another point to consider. Because the Perkins  loan  is a fixed rate  loan , and because the interest rate on a student  loan  consolidation is determined by the weighted average of the other  loans , you could actually pay a small percentage more on a consolidated Perkins  loan  over time.

Stafford  Loans  - Good Choice for Student  Loan  Consolidation

Stafford  loans  are the most common  loans , and also the most popular type to consolidate. Stafford  loans  have a variable interest rate like the PLUS  loan , making refinancing a smart choice.  Loan  consolidation can reduce the repayment amount by up to 63% if refinanced through the right lender.

Like the Perkins  Loan , the Stafford  Loan  also offers a few forgiveness programs for those in certain teaching positions and other various public service jobs. Check to see if you"re eligible for any forgiveness programs before applying to consolidate student  loans .

Health Professions Student  Loan  (HPSL) - Consider before refinancing

The HPSL  loan  for medical professionals is a fixed rate  loan  like the Perkins  Loan . The HPSL comes with certain deferment options that may be lost after consolidation.

The HPSL offers a 3 year deferment period designed to give relief to medical professionals during residency. This deferment option may or may not be lost after consolidation. Those who have HPSL college  loans  should inquire with various lenders about deferment options.

Direct  Loans  - Good Choice for Student  Loan  Consolidation

Some schools offer Direct  Loans , meaning that the money given to students comes directly from the federal government, not through a private lender. Borrowers who obtain these college  loans  must first consolidate through the Direct  Loan  program, but then have the opportunity to shop around for lower interest rates.

Beginning July 1st 2006, borrowers will face much stricter regulations when consolidating Direct  Loans . After the 1st of July, borrowers will only be able to switch lenders if their current lender does not offer a student  loan  consolidation with an income sensitive repayment plan.

The two most popular types of  loans  are the Stafford  Loan  and the PLUS  Loan  which is the reason it"s so popular to consolidate student  loans . Many students acquire a variety of college  loans  that may not be beneficial to consolidate. Student  loans  are not all created equal. It"s important to understand the unique qualities of your individual  loans  and work with your lender to determine the option that is right for you.

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Source by Chris Studer