Student Loan Consolidation
A student loan consolidation combines some or all of your federal student loans into a new, easy-to-manage loan. While consolidating your loans can extend your term and lower your monthly payment, you might also pay more interest and lose certain benefits.
Note that you can only consolidate federal student loans — not private loans, which you would need to refinance in order to combine into a single loan.
Consolidation vs. refinancing
The terms “consolidation” and “refinance” are often used interchangeably, but each has key differences.
| Student loan consolidation | Student loan refinancing | |
|---|---|---|
| Description | Takes eligible federal student loans and combines them into one federal Direct Consolidation loan. | Student loans (whether private or federal) are paid off, and the lender issues a new private student loan to you. |
| Eligible loans | All federal loans, but note that you can’t combine parent PLUS loans with student loans. | All student loans, whether private or federal. But note that refinancing federal loans means you’ll lose special federal benefits. |
| Interest rate | A new fixed rate based on the weighted average of the consolidated loans. You can estimate your new payment by using our student loan consolidation calculator | A new rate based on your income and credit score (or that of your cosigner). |
| Repayment terms | Up to 30 years | Usually 5 to 25 years |
Warning : Consolidation and student loan forgiveness
Before consolidating your federal loans, consider reaching out to your student loan servicer to make sure it won’t have a negative effect on your options for loan forgiveness. Specifically…
You could lose access to some forgiveness programs. For example, if you have Perkins loans, you won’t be able to seek Perkins loan cancellation. Also, you might lose credit toward forgiveness on an income-driven repayment (IDR) program if you switch it to a Direct Consolidation loan, or it could affect your progress on Public Service Loan Forgiveness (PSLF).
Until the end of 2023, the government was offering a one-time adjustment so that you won’t lose forgiveness credit (in some cases) when you switch repayment. Check out this StudentAid.gov information sheet for details, and discuss with your servicer.
Federal student loan consolidation
What is federal loan consolidation?
A Direct Consolidation Loan simplifies repayment by combining separate federal student loans into a single loan — with one monthly payment.
If you have multiple federal student loans, you might have several student loan servicers managing your loans and payments. As a result, it could be easy to lose track of a loan and forget a payment.
Consolidating streamlines your bills, which can make managing your student loan debt easier.
Interest rates and terms
Like all other federal student loans, Direct Consolidation loans use a fixed interest rate, keeping your monthly payment consistent.
The consolidated loan term can extend to 30 years, and if you lengthen your term, then your monthly payment amount will likely drop. But be aware, a longer term also generally means you’ll pay more interest over the life of the loan than you would with the standard 10-year repayment plan.
The weighted average of your consolidated loan rates will determine your new loan’s rate, rounded to the nearest 1/8 of a percent. If some loans have a significantly higher interest rate, consolidating could be beneficial.
However, consolidating isn’t for everyone. You could potentially lose valuable borrower benefits. Plus, a longer term means you’ll likely pay more interest in the long run, thus increasing your total student loan debt.
Federal student loan consolidation pros and cons
| Pros | Cons |
|---|---|
Could lower your monthly payment with a longer loan term Simplified loan repayment May provide access to some forgiveness programs | Possible loss of credit toward student loan forgiveness Could lengthen the time you spend in debt and add to your total interest costs Any unpaid interest could be added to your principal |
Should I consolidate my federal student loans?
The decision to consolidate depends on your unique situation, such as your loan types, current debt and long-term financial goals.
A Direct Consolidation Loan could be a smart move if you want…
- A lower monthly payment. Consolidating usually extends your repayment term, thus lowering your monthly bill. While this can offer immediate financial relief, entering a longer repayment term will likely result in more paid interest. That said, being able to manage your payments today could be worth the extra long-term cost.
- The ease of a single payment. Keeping tabs on multiple student loans can take extra brain work. It also puts you at risk of forgetting a payment, which could hurt your credit and future loan eligibility. Streamlining your payments into one (and maybe enrolling in autopay) could help reduce the mental burden of student loan debt.
- Access to an IDR plan. If you have federal family education loans (FFEL), Perkins or PLUS loans, you’ll need to consolidate them before applying for certain IDR plans.
- Access to student loan forgiveness. Perkins and FFEL loans are only eligible for certain student loan forgiveness programs, such as PSLF, if you consolidate them via a Direct Consolidation Loan first.
- To get your loans out of default. Dealing with a student loan default can be challenging. While loan rehabilitation is one option, it can take several months to complete. In comparison, consolidating your defaulted loans is generally faster.
But despite its many benefits, it’s important to note the following downsides of federal loan consolidation:
- A longer repayment period. Your new repayment term could extend up to 30 years. Your total education debt determines your consolidation loan’s new term.
- More paid interest. The longer it takes to repay your loan, the more accrued interest you’ll end up owing.
- Capitalized interest. If any of your loans have unpaid interest, that interest will automatically be added to your consolidated loan’s principal — a process called capitalization. Basically, you’ll end up paying interest on top of interest.
- Loss of certain borrower benefits. You could lose certain benefits when you consolidate loans other than Direct loans, such as interest rate discounts or principal rebates.
- Discontinued progress toward PSLF or IDR plan forgiveness. Although certain loans need to be consolidated to be eligible for PSLF and IDR forgiveness, your Direct loans could lose credit for qualifying payments after consolidation. Basically, the clock could be reset and you would need to start from scratch. There is an exception though — see “Warning: Consolidation and student loan forgiveness” above.
When deciding whether consolidation is right for you, make sure to consider deferment or forbearance for short-term relief from payment difficulties. There are also a few refinancing options worth pursuing.
Private student loan consolidation (refinancing)
What is private student loan consolidation?
Like federal student loans, you can also combine private student loans into a single monthly payment. But rather than using consolidation, you would refinance via a bank, a credit union or an online lender.
Remember, this is quite different from the federal Direct Consolidation Loan, as outlined above.
Important: It’s best to avoid refinancing federal student loans since you’ll lose federal benefits and protections.
Interest rates and terms
Many refinance companies offer both variable and fixed interest rates. While a variable rate could give you immediate savings, you risk paying more if rates jump higher.
Term options typically range from 5 to 25 years. A shorter term will reduce your total interest charges if your budget can afford the higher monthly payments.
Pros and cons of consolidating student loans privately
Lenders may offer you a reduced interest rate on your student loan refinance based on your creditworthiness. The lower your interest rate, the more you can save over the life of your loan.
However, if you’re not able to secure a loan with a lower interest rate than you’re currently paying, there may be little benefit to refinancing, beyond lumping all your loans into one or switching away from a problematic lender.
Also note that private student refinance loans might have a variable interest rate, making your monthly bill unpredictable.
When to consider private student loan consolidation
If you can snag a lower interest rate, refinancing your student loans could save you a bundle of money over time. For example, changing your interest rate from 8% to 5% on a $10,000 loan with a 10-year term could save you $1,831.
However, lenders generally require a reliable source of income and a good credit score to qualify for the most competitive rates. Check your credit score to see where you stand. Alternatively, you can add a creditworthy cosigner to your application to increase the likelihood of getting the best rate.
Frequently asked questions
If applying for a Direct Consolidation Loan, the answer is no. However, you can combine federal and private student loans with a private student loan refinance.
But be aware, you’ll lose all government benefits when you refinance federal student loans, such as access to income-based repayment plans and student loan forgiveness programs.
This depends on your unique situation and the types of loans you have. If consolidating federal student loans, you risk losing benefits associated with your current loans, such as interest rate discounts or principal rebates, as noted above. Also, consolidation can reset your progress toward student loan forgiveness.
If your main goal is to lower your monthly bill and extend your repayment term (up to 30 years), consolidating could be a smart move for you. You can also switch any variable-rate loans to a predictable fixed rate — making it easier to stick to a monthly budget.
Your credit score doesn’t matter with a federal student loan consolidation since your new rate is based on the weighted average of your combined loans. Therefore, you don’t need to undergo a credit check.
However, a private refinance lender will likely run a hard credit check to determine your new rate. This could cause your score to drop slightly, but it shouldn’t hurt you in the long run.
You can’t get a lower rate when consolidating federal student loans since the new rate is calculated based on your current loan rates. And the federal student loan interest rates are determined each year by the government, not by your credit profile.
However, you can hunt for a lower rate with a private loan refinance. Rates vary based on current market trends and your financial status.
The Department of Education can consolidate your federal loans for free at studentaid.gov. There are no credit or income requirements for a federal student loan consolidation.
If you want to switch to a private lender, you can refinance your private and/or federal student loans by visiting the lender’s website. But remember, it’s best to avoid refinancing federal student loans if you want access to government assistance.
There are five main options for federal student loan debt relief, although not all loans will qualify:
- Direct loan consolidation
- Student loan refinancing
- Deferment or forbearance
- Student loan forgiveness
- IDR plans
The Department of Education also offers multiple federal student loan repayment options based on the borrower’s financial circumstances.
Make sure you carefully research all your options and weigh the pros and cons before taking action. Ultimately, these alternatives are better than defaulting on your student loans.