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Carrying multiple student loans can feel overwhelming. You have to stay on top of the monthly due dates, interest rates, and terms of each loan while navigating the rules, expectations, and web portals of more than one loan servicer.
Student loan consolidation can help. Not only does this process simplify your monthly payments, meaning you have a single loan servicer, interest rate, and monthly due date, but it can also potentially reduce your monthly payment.
Here’s what you need to know about student loan consolidation:
- Consolidation vs. refinancing
- Consolidating private student loans
- Consolidating federal student loans
- Pros and cons of student loan consolidation
Consolidation vs. refinancing
Student loan consolidation combines multiple loans into a single loan. If your various student loans each have different rates, terms, monthly payments, or other conditions, the consolidation can combine all the loans together, simplifying your loan repayment.
As a borrower, you have two options for student loan consolidation:
- Federal student loan consolidation: If you have federal student loans, you can consolidate them with a new Direct Consolidation Loan from the U.S. Department of Education. This option will not reduce your interest rate and is not available for any private student loans.
- Private student loan refinancing: Consolidating with a private loan is often called refinancing, rather than consolidation. This option lets borrowers consolidate both federal and/or private student loans into a single private loan. However, consolidating federal loans with a private student loan refinance means losing out on the federal student loan protections.
Consolidating private student loans
More commonly known as student loan refinancing, private consolidation also allows you to combine multiple student loans into a single loan with a single servicer. You may find some additional benefits to private student loan refinancing that could make it the right choice for your consolidation needs. These benefits include:
Ability to consolidate both federal and private loans
Federal loan consolidation is only available for federal student loans — but private student loan consolidation will allow you to combine both federal and private loans into a single loan. This means private student loan refinancing is the only way for borrowers with both federal and private student loans to consolidate them into a single loan.
Lower loan costs
Private student loan consolidation does not just combine all your loans into one — it also gives you a new loan term and single interest rate for your loan. As mentioned above, your interest rate will depend on your credit score, payment history, and current financial profile. However, you may also have some choice in your new loan term.
Some borrowers decide to take a shorter loan term. Under a shorter term, your monthly payments are higher but you’ll pay off your loan more quickly and spend less on the loan overall.
Other borrowers may choose a longer loan term to reduce their monthly payments. This will help with monthly budgeting, but increase the total cost of the loan compared to a shorter term.
Refinancing lenders rates
The student loan consolidation companies in the table below are Credible’s approved partner lenders. Because they compete for your business through Credible, you can request rates from all of them by filling out a single form. Then, you can compare your available options side by side.
Requesting rates is free, doesn’t affect your credit score, and you won’t have to share your personal information with our partner lenders unless you see an option you like.
|Lender||Variable rates from (APR)||Fixed rates from (APR)|
|7.12%+ - 11.19%+8||7.610%+ - 14.510%+8|
|Compare personalized rates from multiple lenders without affecting your credit score. 100% free!
All APRs reflect autopay and loyalty discounts where available | 1Citizens Disclosures | 2College Ave Disclosures | 5EDvestinU Disclosures | 3 ELFI Disclosures | 4INvestEd Disclosures | 7ISL Education Lending Disclosures | 8Nelnet Bank Disclosures
Consolidating federal student loans
With federal student loan consolidation, you’ll take out a Federal Direct Consolidation Loan, which will satisfy all your existing federal loans. The new loan will have a single loan servicer, monthly payment, interest rate, and loan term. The term will range between 10 and 30 years, depending on the specific repayment plan you choose.
Federal student loan consolidation can’t reduce your interest rate, even if you have multiple loans with different rates. The Federal Direct Loan interest rate is the weighted average of all your federal student loan rates, rounded up to the nearest one-eighth of a percent.
Even though you won’t lower your interest rate with such a consolidation, Federal Direct Consolidation Loans do have some other important benefits.
Simplify your payments
Having a single loan servicer, monthly payment, interest rate, and term will make it much easier to both stay on top of your student loan payments and make plans to pay the loan off. When you no longer need a flow chart to remember who, when, and how much you owe, you’ll feel more confident about your ability to repay your student debt.
Access government repayment programs
A Federal Direct Consolidation Loan also allows borrowers to access the many repayment options that are only available through federal loans. These repayment plans can help make your loans more affordable, more manageable, or potentially eligible for forgiveness.
Some of these repayment options include:
- Public Service Loan Forgiveness (PSLF): Under the PSLF program, federal student loan borrowers who are employed full-time by federal, state, local, or tribal government, or who work for a qualifying nonprofit, may be eligible to have the balance of their student loans forgiven. To apply for PSLF, you’ll first need to make 120 monthly payments while certifying your employment with a qualifying employer for each of the 10 years of payments.
- Income-Driven Repayment (IDR) plans: Borrowers who struggle to afford their monthly student loan payments under the standard repayment plan can apply for an IDR plan, where the payment is adjusted based on the borrower’s income and family size. After 20 to 25 years of regular payments on an IDR plan, any remaining balance on your loan will be forgiven.
- Deferment and forbearance: All federal student loans allow borrowers to temporarily pause payments. No interest will accrue on your loan balance during a deferment, but interest will accrue on your loan during forbearance. For that reason, the requirements for deferment eligibility tend to be more strict.
Pros and cons of student loan consolidation
Here are some of the benefits and drawbacks of consolidation.
Pros of student loan consolidation
Consolidation can help you better manage your finances in the following ways:
- Simplify your bills: Instead of juggling multiple loans with different payment due dates each month, you’ll only have a single loan to worry about. That will make monthly payments much easier to manage.
- Lower your loan costs: Consolidating your loans could potentially reduce your monthly payment amount or the total cost of your loan. Extending your repayment term or lowering your interest rate could help you save money on your monthly payments. Whereas shortening your repayment term and lowering your interest rate could reduce the total cost of your loan over its lifetime.
- Release a cosigner: If you took out your student loans with a cosigner, consolidation can allow you to release that cosigner and take on the full responsibility of your loans.
Cons of student loan consolidation
Student loan consolidation is not necessarily right for everyone. Here are some of the potential disadvantages to keep in mind:
- You could pay more. Extending your repayment term will reduce your monthly payment amount, but it can also increase the amount of interest you pay over the life of the loan. It’s important to determine if the monthly relief of a lower student loan payment will be worth the higher price you pay overall.
- Your principal could increase. If you have unpaid interest on your individual loans, consolidation will add that interest to your principal. This means that going forward, you’ll be paying interest on the original principal plus that unpaid interest.
- You could lose emergency protections. Federal loans offer a number of protections to borrowers, including deferral and forbearance options, as well as a payment-free grace period immediately after graduation. Consolidating your federal loans into a private student loan refinancing means you’ll forfeit these protections.