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How To Consolidate Student Loans (Federal & Private)

Student loan consolidation involves getting a new loan to pay off one or more existing educational debts. This process looks different for federal and private student loans.

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By Christy Bieber

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Christy Bieber

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Christy Bieber has been working full-time as a freelance writer since 2008. She has written blogs, news articles, textbooks, and online courses on the topics of law, finance, and history. She lives with her husband, two children, and beagle.

Edited by Renee Fleck

Written by

Renee Fleck

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Renee Fleck is a student loans editor with over five years of experience in digital content editing. Her work has been featured in Fast Company, Morning Brew, and Sidebar.io, among other online publications. She is fluent in Spanish and French and enjoys traveling to new places.

Updated November 14, 2023

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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There are many different ways to try to make student loan repayment easier, and student loan consolidation is one of them. 

But, what is student loan consolidation and how does it work? The answer depends on whether you're talking about private or federal student loans. 

This guide will explain the differences and provide tips on how to consolidate student loans so you can decide if this process is right for you. 

What is student loan consolidation?

Student loan consolidation is the process of getting a new loan to repay existing student debt. This process can potentially help simplify the management of your student loan debt by allowing you to make one payment instead of multiple payments for various loans. 

However, the definition and the reasons you consolidate will vary depending on whether you are talking about federal student debt or private student debt.

Federal student loan consolidation

If you have federal student debt, there is actually a special student loan issued by the Department of Education called a Direct Consolidation Loan. This loan is the only way you can consolidate federal loans without losing access to borrower benefits. 

Your Direct Consolidation Loan allows you to borrow enough to repay one or more eligible federal debts. You'll then work on repaying your new loan, which offers access to some extra payoff plans. 

Consolidating federal student loans doesn’t necessarily lower your interest rate, though. The interest rate on your Direct Consolidation Loan will be a weighted average of all the loans you consolidated, rounded up to nearest one-eighth of a percent. 

Private student loan consolidation 

Private student loan consolidation, also called refinancing, works differently. When you get a refinance loan from a private lender, your new lender repays one or more of your existing debts. Once your old accounts are paid off, you'll begin making payments to your new refinancing lender. 

Your interest rate can change when you refinance, and it's even possible to consolidate federal and private loans together. However, if you refinance federal student loans into a private loan, you give up federal borrower benefits

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Benefits of student loan consolidation

Consolidating your student loans can potentially offer several benefits. Here are some of the advantages of federal student loan consolidation:

  • A simplified repayment process: Instead of having multiple monthly payments to make and multiple loans to repay, you can consolidate into one loan with one monthly payment and payoff schedule.
  • Lower monthly payments and extended repayment terms: Direct Consolidation Loans offer access to payment plans lasting up to 30 years. A longer payoff plan can lower your monthly payments, although it does increase total interest costs in the long run. 
  • Potential access to additional repayment plans and loan forgiveness programs: If you consolidate loans other than Direct Loans, you can gain access to an income-driven payment plan or Public Service Loan Forgiveness (PSLF). 

Benefits to private student loan refinancing are similar in some ways. You can also benefit from:

  • A simplified repayment process: Since you're combining multiple debts into one consolidated loan, you’ll have just one monthly payment and a single lender to manage. 
  • Lower monthly payments: Refinancing your private student loans can result in lower monthly payments, either because you reduce your interest rate or extend your repayment time, or both.

Potential drawbacks of consolidation

It's important to consider both the pros and cons of student loan consolidation. Here are some of the disadvantages. 

  • Longer repayment terms can result in more interest costs over time: If you consolidate or refinance to make your repayment term longer, you'll pay interest for longer, so you’ll likely pay more over time. You'll also be in debt for longer.
  • You could lose certain borrower benefits: Consolidating federal loans could potentially cause you to lose interest rate discounts, principal repayments, and some loan cancellation benefits. Make sure to understand what you're giving up before you move forward.
  • Not all consolidation options offer income-driven payment plans or loan forgiveness: If you use private student loans to refinance debt, you’ll lose access to federal benefits like income-driven repayment plans and loan forgiveness programs

How to consolidate federal loans

If you want to consolidate your federal student loans using a Direct Consolidation Loan, you will need to log in to your Federal Student Aid (FSA) account to apply. You must have an FSA ID as well as details about the loans that you want to consolidate.

The loan application process can typically be completed online in around 30 minutes and you can save your progress and come back.  The process will involve:

  1. Completing the Direct Consolidation Loan application online
  2. Signing a promissory note online
  3. Selecting a new repayment plan for your new consolidated loan

You must make sure you have eligible loans to consolidate. These include:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • Subsidized Federal Stafford Loans from the Federal Family Education Loan (FFEL) program
  • Unsubsidized and Nonsubsidized Federal Stafford (FFEL) Loans
  • FFEL PLUS loans
  • Federal Perkins Loans
  • Nursing Student Loans
  • Nurse Faculty Loans
  • Health Education Assistance Loans
  • Health Professions Student Loans
  • Supplemental Loans for Students
  • 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
  • Loans for Disadvantaged Students
  • Parent Loans for Undergraduate Students
  • Auxiliary Loans to Assist Students

Parents can consolidate parent PLUS loans, but they can't be consolidated together with the federal loans the student received to get their education. Parents must consolidate separately. 

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Important:

You’ll need to keep making payments on all of your current federal loans during the consolidation process until it is completed. Your loan servicer will inform you when the first payment is due.

How to consolidate private loans

To consolidate private loans, you will have to complete a different process called refinancing. The steps to take include the following:

  1. Research private student loan lenders that offer refinancing: Remember, your rate and payment can change when you refinance with a private lender. Shop around carefully to find a lender that’s right for you.
  2. Check eligibility requirements and find out your personalized rate: You'll need to make sure you qualify based on your income and credit score, as private student loan lenders look at this information to determine if you are eligible. Most lenders let you find out your potential rate and eligibility with a soft credit check before you move forward with applying. 
  3. Gather the necessary documentation: You'll need to provide proof of income, details about your other debt, and information about the loans you hope to refinance. Be sure to think carefully about which loans to include. Usually, this will only be existing private loans since you likely won't want to give up federal borrower benefits.
  4. Apply for your refinance loan: You must submit an application using the lender's specific process. Usually, you can do this online. The lender will determine if you are approved and at what interest rate based on your financial credentials. 

Don’t forget to continue making payments on existing loans until your refinance loan has come through and your other educational debts have been fully paid off. Then you'll begin making payments on your new refinance loan.  

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Alternatives to consolidation

Consolidation is one way to lower payments on your student loan debt, but there are other options, including:

  • Switching to an income-driven repayment plan: If you have federal student loans, you can select a plan that caps payments at a percentage of your income. 
  • Putting loans into deferment or forbearance: If you're experiencing financial hardship, you can ask your loan servicer to pause payments. 

If you are behind on your payments, you should also research whether loan rehabilitation or consolidation is the right choice for you.

Only by carefully considering the pros and cons of consolidation, as well as the alternatives, can you make an informed choice about whether this approach could make paying off your educational debt easier. 

Meet the expert:
Christy Bieber

Christy Bieber has been working full-time as a freelance writer since 2008. She has written blogs, news articles, textbooks, and online courses on the topics of law, finance, and history. She lives with her husband, two children, and beagle.