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Thinking About Loan Consolidation

Student Loan Consolidation

If only repaying student loans was as easy as taking them out. The average college student relying on loans to pay for college can easily graduate with 16 or more separate loans. Add dental school, and you’re looking at additional interest rates and bills.

Creating a single monthly payment can make managing the debt simpler, but there are some things you should consider before consolidating.

Understand what kind of loan(s) you have.

Types of Student Loans

  • Direct Subsidized Loans and Subsidized Federal Stafford Loans 
    • The government pays the interest on a subsidized loan while you are enrolled in school, during the six-month grace period after you graduate, and during deferment periods.
  • Direct Unsubsidized Loans and Unsubsidized Federal Stafford Loans
    • You are responsible for paying the interest on these loans starting on the date you receive the loan. Interest accumulates during the grace period and if the loan is in deferment.
  • Direct PLUS Loans and Federal PLUS Loans
    • These loans are for students pursuing graduate or professional degrees or for parents of dependent undergraduate students. You are responsible for paying the interest accumulated on PLUS loans from the date you receive the loan regardless of grace periods or deferments.
  • Private Loans
    • Private loans operate on different rules depending on the lender. Banks, schools, non-profit institutions, or other lenders may be able to offer loans under different terms.

Know about loan benefits.

Some loans have benefits that others do not. For instances, a Perkins loan can be forgiven up to 100 percent if you are deployed with the military, become a science teacher, or for other reasons. Consolidating that loan could eliminate the benefit. Check with the U.S. Department of Education to see if any of your existing loans qualify for Public Service Loan Forgiveness (PSLF).

Figure out what you can afford.

Affordability means what you can pay, not what you want to pay. There are several options available to alleviate the burden of payment.

Types of Repayment Plans*

  • Standard Repayment
    • You pay a fixed amount monthly for up to ten years. This option is generally considered the best value because you will pay the least interest of the life of the loan.
  • Graduated Repayment
    • Payments start low and increase every two years. This is a good option for people who have a low income now, but expect it to gradually rise.
  • Income-Contingent Repayment (ICR)
    • Monthly payments are calculated using adjusted gross income, family size, and overall amount of Federal Direct Loans.
  • Income-Based Repayment (IBR)
    • Monthly payments are capped at 15% of your discretionary income (the difference between your adjusted gross income and 150% of the poverty guideline for your family size and state of residence).

*View a full description of loan options, including a few not listed above.

Is consolidation the best solution?

Are you considering consolidation solely to keep track of payments? If yes, there are easier solutions. Automatic debit can save you the hassle of remembering payments and it may qualify you for an interest rate reduction. Consolidation doesn’t guarantee savings. If you can afford to make the payments on your separate loans, consolidation may not help you.

If you do decide to consolidate, be wary of any lender that charges prepayment fees. That fee punishes you for paying off your loan early.

For more information about loan repayment options, finding a loan servicer, or about deferring payment, check with the U.S. Department of Education.

The ADA has also developed a variety of resources specifically to help dental students and recent graduates. Go to ADA for Dental Students and click on Manage Finances & Debt to learn more about how to manage your payments.