Consolidating subsidized and unsubsidized student loans

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If you had different amounts at each interest rate, your interest rate would be based on a fraction of your total new loan.

For instance, if you borrowed ,000 as a freshman at 4.5% and ,000 as a senior, your consolidated interest rate would drop.

The original 25-year consolidated payment would drop from 6 to 7, and the total interest would drop from ,000 to ,000.

The remaining ,000 Direct Plus loan with a 10-year lifespan would result in an additional monthly payment, with interest totaling under ,250.

Should you avoid consolidating in order to concentrate on paying off the higher rate loans first?

When you consolidate your federal student loans into one loan, your interest rate is an average of all your federal student loans interest rates.

It’s indisputable that consolidating all your federal student loans into one loan paid off over an extended time frame eases the monthly burden of student debt payments.

However, what if the interest rates of your individual loans vary by several percentage points?

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Thus, you can divide the sum of all your loans by four to get your consolidated rate of 5.725%.

For example, say you you earned your Bachelor’s degree in four years and graduated in 2011 .

If you borrowed conservatively (,500 of subsidized federal Stafford loans per school year), your interest rates are as follows: 2010/11 at 4.5%; 2009/10 at 5.6%; 2008/09 at 6%; and 2007/08 at 6.8%.

Borrowers have a choice of several repayment schedules: standard payments are fixed monthly payments which extend over a set period of time; graduated payments start out low and increase every two years; income-sensitive payments are variable payment amounts based on annual income; and extended payments are available for large loans. Obviously, the major benefits of loan consolidation are one lender, lower monthly payments, and a fixed interest rate.

Students and parents should be aware that loan consolidation generally extends the repayment period and, in the long run, may result in increased finance charges over the lifetime of the loan.

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