Simplify repayment, lower your monthly payment, or switch loan servicers — here’s everything you need to know.
Student loan consolidation means to essentially group all of your current student loans together into one new student loan, at a possibly lower interest rate and/or monthly payment. The reason a student loan consolidation may be able to reduce a borrowers monthly student loan payment, is because it extends the lifetime (or repayment period) of the loan(s). Many college graduates opt for consolidating their student loans because it can help lower their monthly student loan payment, however borrowers should be aware that by consolidating your student loans you could end up paying more (in interest charges) over the lifetime of the loan.
The choice to consolidate your student loans is ultimately up to you. Many college graduates look into student loan consolidation to help lower monthly student loan payments, and to possibly lock into a lower and/or fixed interest rate. Consolidating your student loans is by far one of the simplest ways to reduce the monthly costs of your student loans payments, and by consolidating your student loans (given that interest rate average after consolidation is lower then it was before) you may end up getting a better overall deal on your student loans.
| Benefit | Risk |
|---|---|
| Combines multiple loans into one easy payment | May extend repayment term, increasing total interest paid |
| May lower your monthly payment | Interest rate becomes a weighted average — not reduced |
| Access to Income-Driven Repayment plans (for federal loans) | Consolidation resets progress toward loan forgiveness |
| Can help bring a defaulted loan back into good standing | Loss of borrower benefits on original loans (e.g., interest subsidies) |
| Allows you to switch loan servicers | Consolidation is permanent — cannot be undone |
The two types of student consolidation loans are private consolidation loans and federal consolidation loans. Borrowers should always consolidate their federal student loans and their private student loans separately (federal student loans should consolidate into a federal consolidation loan, and private student loans into a private consolidation loan). Borrowers should never consolidate their federal student loans with their private student loans into a private consolidation loan, because they will loose all of the options and benefits associated with those federal student loans.
| Feature | Federal Consolidation | Private Consolidation (Refinancing) |
|---|---|---|
| Eligible Loan Types | Federal student loans only | Federal and/or private student loans |
| Interest Rate | Weighted average of current federal loan rates | Based on credit score, income, and lender terms |
| Repayment Plans | Eligible for Income-Driven Repayment and PSLF | No federal repayment plans or forgiveness options |
| Loan Forgiveness | Still eligible for programs like PSLF or IDR forgiveness | Forgiveness programs typically not available |
| Application Requirements | No credit check or income verification | Requires good credit or a cosigner |
| Purpose | Simplify repayment, maintain federal protections | Lower interest rate, possibly shorten repayment term |
For federal student loan consolidation, borrowers should visit loanconsolidation.ed.gov for information on federal student loan consolidation requirements and to apply. A Direct Consolidation Loan for federal student loans is free, requires no minimum loan amount to qualify, and borrowers may be eligible for income-contingent repayment plans. Borrowers should never consolidate their federal student loans into a private consolidation loan. Always consolidate your federal student loans into a federal consolidation loan to avoid losing all of the benefits associated with your federal student loans.
Some private consolidation loans may be able to reduce the costs of your monthly student loan payments, and offer no fees or pre-payment penalties. It is important for borrowers to do their research on different private consolidation loans and lenders, since private student loan products can differ from one lender to the next. Borrowers should be familiar with all terms and conditions of the private consolidation loan they are considering. Check carefully for stipulations on borrowers benefits, specifically regarding the timeliness of your monthly loan payment. Some private lenders will offer discount incentives for your monthly “on time” student loan consolidation payment, however certain lenders will void these borrowers benefits if even one loan payment is missed. There are many private student loan lenders out there, find the one that has what you are looking for.
Federal student consolidation loans typically offer a lower interest rate when compared to a private consolidation loan, however borrowers cannot obtain a federal student loan consolidation for their private student loans. For federal student loan interest rates and information visit: studentaid.gov.
The interest rates for private loan consolidation will vary with each lender, and each borrowers credit profile. Students who make the choice to consolidate their private student loans may be given multiple chances throughout the loan repayment period to lock into a fixed interest rate for the remainder of the consolidation loan. For private consolidation loans borrowers should evaluate which loans will best help them lock into a low interest rate for the lifetime of the loan, and avoid loans with fees or early payment penalties. To get an estimate of what your student loan consolidation rate may be, calculate the weighted average of the interest rates on your current student loans as follows:
a.) Multiply each student loan debt amount by its student loan interest rate.
b.) Add the totals together.
c.) Divide this sum by your total student loan debt amount.
d.) Round this number up to the nearest 1/8 of a percent.
You should never pay an up-front fee or cost for student loan consolidation. In some student loan consolidation circumstances, fees will be deducted from the disbursement check, but you should never have to pay an up-front fee or cost. If a lender is requiring that you pay them a fee up-front for consolidating your student loans, it is a fairly good chance that the service is a scam. For private student loans, if you received a fee waiver or rebate from your original student loan lender, you should check to see if you will have to repay that fee should you consolidate with another lender. It is also important to note that any accrued and unpaid interest on unsubsidized student loans that are being included in a new consolidation loan could be capitalized at the time of consolidation.
The student loan consolidation process can typically take between 60 to 90 days, and in some instances, possibly even longer. The Federal Direct Consolidation Loans website suggests that using their online web application can help reduce the amount of time taken, but for private student loan consolidation, borrowers should contact the specific lender for the quickest process available. Once the student loan consolidation application has been approved, collecting the loan verification certificates from the lenders can sometimes be a timely process. Having to wait a single month (and usually longer) to complete the student loan consolidation process is a normal amount of time. Borrowers should continue to make their monthly student loan payments until they have received notification that their loans have been consolidated.
Before you consolidate your student loans, it’s important to understand the potential pitfalls. While consolidation can simplify repayment or help you regain eligibility for certain programs, making the wrong move can cost you valuable time, forgiveness credit, or money in the long run. Below are some of the most common mistakes borrowers make — and how to avoid them.
| Mistake | Why It’s a Problem |
|---|---|
| Consolidating Parent PLUS Loans and expecting Income-Driven Repayment (IDR) eligibility | Parent PLUS Loans are not eligible for most IDR plans, even after consolidation. The only exception is the **Income-Contingent Repayment (ICR)** plan, which typically has less favorable terms. If you’re hoping to get on a lower-payment plan like SAVE or PAYE, consolidating a Parent PLUS Loan won’t help — and may limit your future options. |
| Losing Public Service Loan Forgiveness (PSLF) credit | If you’ve made qualifying payments toward PSLF under a Direct Loan program, consolidating your loans can **reset your payment count to zero**. That means you could lose years of progress toward forgiveness. You should only consolidate if it’s necessary to become PSLF-eligible (e.g., turning FFEL loans into Direct Loans), and **only after evaluating the trade-offs**. |
| Choosing longer terms and paying more in interest | While a longer repayment term (like 20 or 30 years) may reduce your monthly payment, it usually results in **much higher total interest costs over the life of the loan**. Consolidation is often sold as a way to “simplify repayment,” but be sure you’re not unknowingly committing to decades of extra interest. Use a calculator to compare total repayment costs before choosing terms. |
| Consolidating when you don’t need to | Many borrowers rush to consolidate simply because it sounds like a good idea. But if you already have a single federal loan, or you’re close to forgiveness eligibility, consolidation could do more harm than good. **Only consolidate if it serves a clear financial or strategic purpose**, like simplifying repayment, regaining good standing, or gaining access to a better plan. |
| Assuming consolidation reduces your interest rate | Federal loan consolidation uses a **weighted average** of your current rates, rounded up to the nearest 1/8th of a percent. It does **not lower your rate** — it just locks it in. If you’re looking to reduce your rate, you’ll need to look into **private refinancing**, which comes with its own pros and cons (like loss of federal protections). |
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