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Who to Consolodate with?

Started by WiltChamberlain, January 23, 2017, 10:53:16 am

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WiltChamberlain

Hi, can you give me the basics on who I should consolidate with? That is, if I should at all.

I have one loan totaling $23,000 and one totaling $3,000.

The $23,000 is in an income-based repayment plan and therefore isn't expecting payment.

The $3,000 expects payment ... well, yesterday. It also can't be delayed any longer. But the minimum payment for which is an affordable $40.

But I was thinking about consolidating the $3,000 loan into the $23,000 loan, as that would further put off payment of any kind. The $23,000 loan seems more lenient about income-based repayment plans.

But then again, I could consolidate both loans into some third-party account, but I don't yet know who or even how to go about finding out.

Or, I could just start making my $40 payments every month and pay them off separately.

How do I do this? Will math be involved?

Thanks.

TheCollegeInvestor

Based on what you've said, I would recommend not consolidating. If you consolidate your loans, you lose any time you've spent on the $23k loan on IBR. Since you get forgiveness after 20 or 25 years based on the loan date, the clock resets. You didn't say how long you've had the loans, so you have to decide if that makes a difference for you or not.

If you still want to consolidate for convenience, you can do it for free at StudentLoans.gov.

WiltChamberlain

A bit. It's been about three years since I graduated.

Can you explain this "Since you get forgiveness after 20 or 25 years based on the loan date, the clock resets" further?

"Forgiveness" means, what, I don't have to pay the loan? Can't be ...

I hope this naivete is charming rather than annoying. Thank you for the initial response and for the one hopefully forthcoming.

TheCollegeInvestor

Yes, if you get on IBR, you pay your loan for:
- 20 years if you're a new borrower after July 1, 2014
- 25 years if you're a borrower from before July 1, 2014

It all depends when you take out your loan. If you consolidate your loans, your clock resets - your new loan would start as of Jan 24, 2017 (or whenever you consolidate). However, the same time period will apply (because you won't be a new borrower). So, you really just add years to your loan.

As for forgiveness, any remaining loan balance is forgiven if your federal student loans aren't fully repaid at the end of the repayment period. For any income-driven repayment plan, periods of economic hardship deferment and periods of repayment under certain other repayment plans will count toward your total repayment period. Whether you will have a balance left to be forgiven at the end of your repayment period depends on a number of factors, such as how quickly your income rises and how large your income is relative to your debt. Because of these factors, you may fully repay your loan before the end of your repayment period.

WiltChamberlain

And "forgiven" is a synonym for "eradicated," doesn't exist anymore? And with no damage to one's credit history?

Then, what may I ask, is the big incentive for paying it at all? Besides, of course, moral ones.

I.e., what's stopping me form just "paying what I can" (whatever that means) until it's forgiven?

I feel like there has to be something more to this. Thanks again.

TheCollegeInvestor

Well, you have to pay for 20 or 25 years. It's not about "paying what you can", but paying based on your income - the amount you pay each month is set by your discretionary income (which is based on AGI, family size, poverty line, etc). Yes, you could choose to not earn much income, but that doesn't serve you well personally even with regards to your student loans. And there is no damage to your credit history if you make your payments on time.

Furthermore, as it stands today, debt that is forgiven is considered income for tax purposes. So you could owe taxes on any debt forgiven. Read this article about it: https://thecollegeinvestor.com/11856/secret-student-loan-forgiveness/