Best Ways to Consolidate Student Loans

Consolidating your debts is a popular way to stay on top of multiple debts and lower monthly repayments. But can you consolidate student loans? The simple answer is: Yes.

In fact, there are two main ways to do this — federal and private loan consolidation. They both work in similar ways, but there are a few key differences to know about before you decide.


How do you consolidate student loans?

Consolidating student loans works in much the same way as consolidating any type of debt. You combine multiple loans by taking out a new loan to clear the balances, leaving you with a single loan balance to pay off. 

The reason people do this is usually to save on interest rates because the new loan should ideally have a more favorable rate. It also makes managing the loan a lot more straightforward since there’s just one monthly repayment to think about. 

When it comes to student loans, you can either refinance through a federal loan program or through private financing — for example, from a bank.

By consolidating your loans, you replace multiple student loans (federal, private, or a mix of both) with one single new loan. 


Federal vs. private loan consolidation

You can either consolidate your student loan via a federal loan program or through private financing. There are pros and cons to either option.

Federal student loan consolidation

This involves combining multiple federal loans into a single loan. While federal loan consolidation won’t lower your interest rate, it could help to lower your repayments if you refinance over a longer period of time. 

When you consolidate federal loans, the government pays them off and replaces them with a new consolidated loan. There is no fee to consolidate federal education loans through the Department of Education, and this option is usually open to anyone who graduates or drops out of school. 

Your new loan will have a new interest rate which will be the weighted average of your previous rates, rounded up to the nearest one-eighth of 1%. This means that your interest rate won’t necessarily decrease. 

Your new loan term will range between 10 to 30 years in most cases, and repayments typically begin within 60 days of when you first receive the new loan.

How to consolidate federal student loans 

To consolidate your federal student loans, you will need to log in to and complete an application for consolidation called the "Federal Direct Consolidation Loan Application and Promissory Note.” It should take about 30 minutes to do once you have all the documents you need. 

During the application, you will need to:

  • Give details of which loans you want to consolidate

  • Choose a repayment plan, which could be tied to your current income or the loan balance

  • Submit your form after reading the terms of your new loan

  • Make sure you continue making your student loan repayments until your loan servicer confirms your consolidation loan is active

Private student loan consolidation

Private loan consolidation, otherwise known as refinancing, means replacing multiple student loans with a new loan as well. 

The main difference is that you may be able to get a lower interest rate with a private loan. However, eligibility criteria are usually more strict. You will have to submit details of your financial history, including your credit score, whereas federal loan consolidation doesn’t have a credit requirement. 

Another thing to bear in mind is that if you refinance federal loans with a private lender, you’ll lose access to government programs. For example, Public Service Loan Forgiveness and income-driven repayment agreements are off the cards in this case. 

How to consolidate private student loans 

To consolidate your student loans via a private lender, you will need to apply for student loan refinancing. Each lender will have its own process for applying for a loan, but most can be done online.

With private lenders, you will need to submit details of your credit score, income, and any other eligibility criteria that they ask for. Most loan decisions are quick, and you may be able to consolidate the loans you already have, replacing them with your new one. 


Pros and cons of consolidating your student loans

Consolidating your loans is a big decision to make, so it’s definitely worth weighing all the pros and cons first.

Pros of student loan consolidation

  • It makes managing repayments much simpler because you only have one loan to think about.

  • You may only qualify for programs such as the Public Service Loan Forgiveness program if you consolidate your loans. However, this only applies to federal loan consolidation.

  • You may be able to save on interest rates, but only if you opt for private loan consolidation. 

  • You could reduce your monthly repayments. If opting for federal student loan consolidation, you can stretch your repayments over 30 years to reduce monthly repayments. With private loan consolidation, you can do this, plus reduce costs because of the lower interest rates.

Cons of student loan consolidation

  • You could pay more interest. As federal student loan consolidation doesn’t reduce interest rates, you could be paying more overall. Also, if you stretch your loan term to a maximum of 30 years, this makes the loan more expensive due to the added years of interest payments. 

  • You could miss out on federal loan benefits if you refinance with a private loan, such as interest rate discounts, Public Service Loan Forgiveness, and income-driven repayment agreements.


What the new student loan forgiveness program means for you

Under the Biden administration's student loan forgiveness program, millions of federal student loan borrowers could be eligible for $10,000 in loan forgiveness. However, to qualify, borrowers must have federal loans. Those who consolidate their federal student loans into new private loans will not automatically qualify for loan forgiveness. 

However, the Education Department confirmed that those with private student loans can potentially get loan relief by consolidating their loans into the Direct Loan program. Either way, it's definitely worth considering the loan forgiveness program in your decision to consolidate loans. 


Who should consolidate student loans?

While it’s an individual decision, there are some rules of thumb. Generally speaking, if you have access to income-driven payment plans or you’re already working towards loan forgiveness, consolidating your loans is not usually a good idea.

If you want to save on monthly repayments or extend your loan term, then consolidation could be the right move for you. Just be sure to check whether federal or private loans are best for your circumstances. 

It’s important to weigh all the pros and cons before choosing a consolidation loan. That way, you can ensure you don’t miss out on any potential benefits and that your consolidation loan will put you in a better position than before.

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