Why Perkins Loans Borrowers Should Think Twice Before Consolidating
When it comes time to repay student loans, every borrower should have a strategy.
For many people, that strategy might include student loan consolidation. Consolidation has its pros and cons , but if you're dealing with multiple payments from multiple loan holders, this option could definitely simplify things for you. But borrowers with Perkins loans need to think twice before consolidating these loans. Here's why.
[Beware of four warning signs of student loan default.]
-- Perkins loans have their own forgiveness program. Perkins loans are federal student loans for students with significant financial need. These loans come with a fixed 5 percent interest rate and special postponement options, but the greatest benefit of these loans is their exclusive forgiveness program.
Unlike some income-driven repayment plans that may eventually result in forgiveness after years of payments, Perkins loans are forgiven incrementally. This means you shave a bit off this debt each year you are eligible. How much depends on the type of work you do, as well as when you took out your loan. However, in all, it's possible to have up to 100 percent of your Perkins loan debt cancelled.
Fields that qualify for this forgiveness include: teachers, nurses, child or family services workers, active duty military, firefighters and police and a number of other public and volunteer services. With Perkins loans, you can only cancel amounts you have yet to repay and there is no retroactive forgiveness. Schools administer Perkins loans themselves, so if you think you qualify for this option, you should contact them as soon as possible to find out more.
[Here are terms you should know before repaying student loans.]
-- Consolidation wipes away Perkins loan benefits. To understand why you shouldn't consolidate Perkins loans, you first need to understand how consolidation loans work. Some may think consolidation simply combines your loans together. That's somewhat true, but it doesn't tell the whole story.
When you consolidate your student loans, you borrow a new loan to pay off your original ones. So, in most cases, your original loans no longer exist after you consolidate them -- and that's where the issues come with Perkins loans.
By consolidating these loans, you erase them, meaning you also erase your ability to utilize their special postponements or have them forgiven through Perkins loan forgiveness. In short, you keep the debt but lose the benefits that came with it.
[Understand the pieces of your student loan payment.]
-- You have options. Of course, just because you have Perkins loans doesn't mean consolidation can't still be part of your repayment strategy. If you have these loans and want to consolidate your debts, be sure to do two things before moving forward.
First, think about the work you're doing now and plan to do in the future. Consider if you expect to have a job in one of the fields that offers complete forgiveness. If not, then you may not miss the benefits above.
Even so, your best bet may still be to move on to the second item on your checklist, which is to pay attention to the loans you consolidate.
When taking out a consolidation loan, you choose which debts to include -- a federal consolidation doesn't have to include all of your federal student loans. Instead, when you go through this process, keep your Perkins loans separate. You'll have a separate payment to make, but the potential freedoms this debt provides could be worth the hassle.
If you're not sure if you have Perkins loans, Definitely find out before you consolidate by visiting the National Student Loan Data System.
Ryan Lane is the senior editor for American Student Assistance, where he oversees the financial website saltmoney.org and serves as the editor of the SALT Blog. He graduated from Syracuse University with a B.S. in journalism.
