Upfront principal reduction or interest rate reduction benefits? Higher interest on a lower balance or lower interest on a higher balance: at the end of 25 years, which is better?

I’m trying to figure out if I am better off with a consolidation company with borrower benefits that are geared towards upfront principal reduction or one that provides a hefty interest rate reduction. Snowpuppy mentioned that someone had done a calculation, and upfront principal reduction was better for that person. Could someone show me how to do this, or link to that post? (I searched and came up empty-handed.)

I started going about it like this, but I think this may not be the right way:
If I have $42k in student loans to consolidate (25 year term)…
5% principal reduction = $42k*.05 = $2,100 savings, once
2.25% interest rate reduction = $42k*.0225 = $945 savings, annually
(Granted, the $945 savings will decrease over time as you pay the principal down; and for the 5% principal reduction, you are then only financing $39.9k instead of the full $42k; etc, but you get the gist.)

So it appears that the interest rate reduction savings are likely to exceed the principal reduction savings within 5 years, making the interest rate reduction route the better of the two. Is that right? Anyone have a calculator that will work through all 25 years of the term?

An amortization schedule from the guarrantor is going to give you the answer. Since consolidation loans are federally regulated regarding interest paid "using the weighted average" I don't know how the lender/guarrantor could offer you such a big break in interest savings.

My break from Keybank was an up front principal reduction vs going with Chase who was offering 5% cash back in a check after the first 36 months of ontime payments. The lenders in my case were giving incentives on the principal. The only interest break I get is 1/4% for direct debit.

Maybe Fla-tan can chime in if he knows the math better. If I can find the post I was referring to, will post it in this thread.

My understanding is that consolidation loans are federally regulated regarding interest RATES, but they are not federally regulated regarding interest PAID. (Hence the interest rate reduction deals for auto debit, on-time payments, etc.) But am I mistaken about this?

UHEAA’s deal is 1.25% interest rate reduction for auto debit, and an additional 1% interest rate reduction after you have paid the equivalent of 48 payments (you can pay them all at once if you want). (http://www.uheaa.org/bbinfo.htm)

I thought the resultant 2.25% interest rate reduction for the bulk of the term seemed “too good to be true,” so I did ask how they could afford to offer interest rate reductions that are better than the standard 0.25% for auto debit. The rep said something about state subsidies that offset their costs, plus they are a non-profit (but I know many lenders are). Are there any other questions I should ask?

Thanks for taking a look for that post, Snowpuppy, I appreciate your help! Fla-tan? Anyone else want to chime in?