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You might have a handful of student loans by many different loan servicers — all with different terms and interest rates. Keeping track of all of them might be a part-time job in and of itself, but student loan consolidation might help.

What is student loan consolidation?

There are two kinds of student loan consolidation: federal consolidation and private consolidation (also called student loan refinancing). Federal consolidation is done through the Department of Education with federal loans only and refinancing is done with private loans through a private lender.

If you’re curious about how to consolidate student loans, you have a few different options depending on your situation. Here’s what you should know about consolidating private and federal student loans to save you time, money — and major headaches in the future.

How to consolidate federal student loans

When it comes to your federal loans, you’ll combine all your loans into one with a loan from the Department of Education. To consolidate your federal loans, follow these steps:

  1. Fill out a direct consolidation loan application.
  2. Choose the federal loans you want to consolidate.
  3. Pick a repayment plan.
  4. Continue paying your loans like normal until the consolidation is complete.

What to know about consolidating your student loans

  • Combining all your loans will give you a new interest rate. When you consolidate federal loans with a Direct Consolidation Loan from the federal government, your new interest rate is the weighted average of all your loans. Direct Consolidation Loans have fixed interest rates that don’t change over the life of the loan.
  • Federal student loan consolidation might not lower your monthly payments, but it will make them more manageable. Going from multiple student loan payments a month to one can help you stay on track so you don’t miss any. But consolidating doesn’t mean you’re guaranteed a lower monthly payment.
  • If your credit isn’t the greatest, don’t worry. There isn’t a credit check for a Direct Loan. This is a good option if your credit isn’t great but still want to keep your payments in check.

How to consolidate private student loans

To consolidate your private loans, you’ll have to refinance them. Student loan refinancing is when you get a new loan to replace all your others. But you’ll be taking out a new loan that pays off your other individual loans to give you one streamlined monthly payment. To refinance your loans, first follow these steps:

  1. Use Credible to compare prequalified rates from multiple lenders by filling out a single form.
  2. Choose a lender and your loan terms.
  3. Fill out the application and apply.
  4. Continue paying your loans like normal until the refinancing is complete.

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What to know about refinancing your student loans

  • When you refinance your loans, your new interest rate is based primarily on your credit profile. If you have a great credit score, you can expect a lower interest rate. Generally, refinancing is a good idea if you have the creditworthiness to prove you’re responsible to take on a new loan. Refinancing might lower your payments, too, but if you don’t get a lower interest rate, it could mean you’re paying more over time.
  • If you don’t have the best credit but still want to refinance private student loans, think about finding a cosigner. Cosigners are great if you can’t get a new loan based on your credit report but have a friend or relative who does qualify.
  • If you’re on track for Public Student Loan Forgiveness or have an income-driven repayment plan, you’ll lose those benefits when you refinance. Those are only offered through federal loan repayment programs and refinancing is done through a private lender, so you’ll give up those federal options.

What to do if you have both

If you’ve got a mix of federal and private student loans, you can’t consolidate them through a Direct Consolidation Loan — only federal loans qualify for that. But you can refinance both federal and private student loans.

While the goal of consolidating loans might be to simplify your student loan payments, the goal of refinancing is to simplify and lower payments. But you’re not guaranteed lower payments when you refinance.

Figure out what’s best for you

Consolidating and refinancing are only good ideas if they help you. If you’ve evaluated your repayment options and your interest rate and loan terms aren’t allowing you lower payments, you don’t have to accept it.

It’s OK if you don’t consolidate your education loans or refinance right now — that doesn’t mean you won’t be able to in the future. Always review your income and budget to make sure you’re on track to do what’s right for your finances. Try again in six months or this time next year once you’ve gotten your bills and other financial obligations in order. It’s never too late to take control of your money.

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