If you have a lot of student loan debt, different loan servicers, or both, managing your student loans can be confusing. Federal Direct Consolidation Loans, commonly referred to as federal student loan consolidation, allow you to combine multiple federal loans into one single loan.
Consolidating your federal education loans can simplify the repayment process and provide borrowers with access to federal forgiveness and repayment programs (like Public Service Loan Forgiveness).
What is student loan consolidation?
Consolidating your student loans means taking all of your loans and combining them into a single loan. Instead of having many monthly payments to keep track of, you’ll only have one.
There are two types of consolidation: federal loan consolidation and private student loan consolidation. While both combine your student loans into one manageable payment, they aren’t exactly the same.
Federal consolidation loans
Federal loan consolidation is only offered for federal loans through a Federal Direct Consolidation Loan. While most federal loans are available to be consolidated, not all are. For example, Direct PLUS Loans taken out by a parent for a dependent student can’t be consolidated by the student with other loans.
For federal loans, your new interest rate is the weighted average of all your interest rates, rounded up to the nearest one-eighth percent. You’ll also have one fixed interest rate that doesn’t change for the life of the loan.
If you have a mix of federal student loans and private student loans, they can’t be consolidated together under a Direct Consolidation Loan; that’s where private consolidation comes in.
Private consolidation loans
Private consolidation loans, or student loan refinancing, allows you to combine all your student loans into one loan. You’re not limited in which loans you can consolidate with refinancing — you can include any and all that you wish.
With refinancing, a new loan is taken out to replace all your student loans. You’ll be able to choose from a number of different repayment terms, so that you can pick a loan term based on how much you can afford to pay every month. Your interest rate and approval are based on your credit score, credit history (including debt to income ratio), and which lender you choose.
Learn More: Private vs. Federal Student Loan Consolidation
Should I consolidate my student loans?
Student loan consolidation is a great idea to help manage your loans, but it doesn’t always work for everyone. Before you decide to consolidate your loans, make sure it’s the right fit for you.
Pros and cons of federal consolidation
- Might qualify for a lower monthly payment: Consolidating your loans will expand your loan terms from the standard 10-year term to up to 30 years, which might lower your monthly payment to a more manageable amount.
- Fixed interest rates: Variable interest rates mean your loan payments can change from one month to another, depending on market conditions. Fixed rates mean you’re making the same payment every month. Federal loans only offer fixed rate consolidation loans, while private consolidation loans might offer both.
- Help if you have no credit or low credit: There is no credit check required when you apply for federal consolidation. For private consolidation, there are some lenders that will accept you with a fair credit score or sparse credit history.
- Lower payments aren’t guaranteed: Since federal consolidation loans take the weighted average and round up to the nearest one-eighth percent, you’re not guaranteed a lower payment than you made before.
- Might pay more over time: Stretching out your loan term is great for low monthly payments, but you might pay more in interest over the life of the loan if you choose a longer repayment term than your original term.
- Loss of benefits and discounts: If you are currently on an income-driven repayment plan, you essentially lose any credit you made with those payments. While you can choose an IDR in federal consolidation, you’ll be starting from scratch.
Which loan types can be consolidated?
Most federal loans are eligible for consolidation, including:
- Subsidized Federal Stafford Loans
- Unsubsidized and Nonsubsidized Federal Stafford Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students
- Federal Perkins Loans
- Nursing Student Loans
- Nurse Faculty Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- FFEL Consolidation Loans and Direct Consolidation Loans (under certain conditions)
- Federal Insured Student Loans
- Guaranteed Student Loans
- National Direct Student Loans
- National Defense Student Loans
- Parent Loans for Undergraduate Students
- Auxiliary Loans to Assist Students
Direct PLUS Loans taken out by parents for dependent children can’t be consolidated with other federal loans by the student. Also, remember that private student loans can’t be consolidated under the federal consolidation program.
Learn more: How to Consolidate Your Student Loans
What requirements do I need to meet to be eligible for consolidation?
For a Direct Consolidation Loan, you’ll need to either be already repaying your current student loans or the loans will need to be in their grace period. You can’t consolidate a loan that is currently in default.
Before you get started, you’ll need:
- Your FSAID: This is your Federal Student Aid ID. This is your digital signature when you apply for the loan and is how you access the online portal where your loan information is.
- Your personal information: Your address, email, phone number, and when to reach you if someone needs more details on your loan application.
- Financial documents: Depending on your plan, you might be required to complete income information. Have recent tax returns ready and if you’re married, you’ll need your partner’s financial documents as well as well.
After you have your documents ready, you can apply for student loan consolidation through the StudentLoans.gov.
See the Full List: Best Companies to Consolidate and Refinance Student Loans
When can I consolidate my federal loans?
You can consolidate your federal student loans just about any time you want to after you graduate. But your grace period gives you a nice six-month cushion. Consolidating eliminates the cushion and you’ll need to start repayment about 60 days after the loan is paid out.
However, in your Direct Consolidation Loan application, you can specify that you want the application to be processed closer to when the grace period ends. That way you don’t lose your cushion.
How will my repayment plan change?
If you’re currently paying many different loans every month — on different dates — consolidating will merge all these payments into one. Instead of lots of little payments, you’ll have one bigger payment. Depending on your terms and interest rate, that amount varies.
Federal consolidation doesn’t guarantee lower payments since the interest rates are also averaged out and rounded up. You might actually be paying slightly more than you were before if you consolidate with a Direct Consolidation Loan.
Are there different types of repayment plans?
Whether you consolidate with the Federal Consolidation program or with a private student loan, your repayment options can be determined by your finances.
If you have an income-driven repayment plan through federal consolidation, your repayment is based on how much you earn. As you complete the Direct Consolidation Loan application, you can choose an IDR that best fits what you can comfortably afford to pay every month. This varies depending on your income and financial responsibility.
When you consolidate private student loans, many lenders allow you to select terms best for you. If you want to pay your loan off sooner, you might have a shorter loan term but bigger monthly payments. If you have a set amount of money you can pay every month, you can select lower monthly dues with a longer repayment period.
Where do I apply for student loan consolidation?
You can apply for a federal consolidation loan through StudentLoans.gov.