Student Loan Consolidation Guide

Student loan consolidation may be something for you to consider after college if you find yourself with multiple student loans. Here we’ll examine the ins and outs of the process and the benefits that consolidating student loans may provide.

This is a long and detailed guide to help you understand how student loan consolidation works. If you'd like to get started immediately with consolidating your student loans, you can begin the application process at the following websites:

Federal Student Loans: Figure your payment
Private Student Loans: Figure your payment

Consolidation Guide:
What is Student Loan Consolidation?
Federal vs. Private Student Loan Consolidation
Student Loan Consolidation Benefits
Student Loan Consolidation Requirements
Student Loan Consolidation Interest Rate
Student Loan Consolidation Repayment Plans
Student Loan Consolidation Calculator
How to Consolidate Student Loans
Private Student Loan Consolidation
Student Loan Consolidation Companies

What is Student Loan Consolidation?

Student loan consolidation is the process of combining all your student loans into one loan, one payment, and (usually) one fixed interest rate. The loan consolidator pays off all your current student loans and issues you a new loan based on the combined balances of your previous loans.

What is Federal Student Loan Consolidation?

A Direct Consolidation Loan through the federal government combines your multiple federal education loans into a single loan, and is the preferred method of consolidation for federal student loans.

Private vs. Federal Student Loan Consolidation: What's the difference?

Only federal education loans (Stafford Loans, Federal Perkins Loans, PLUS Loans) can be consolidated through the government into a Direct Consolidation Loan.

If you have multiple private student loans, these can be consolidated into one, but only through companies that offer private student loan consolidation.

Private vs. Federal Student Loan Consolidation: Which is better?

A Direct Consolidation Loan through the government is the preferred method because you can retain some of the benefits of your federal student loans and can choose your repayment terms. There is no cost or fee to consolidate your loans in a federal student loan consolidation. In a private student loan consolidation, there may be a loan origination fee (depending on the consolidation company).

What are the Benefits of Consolidating Student Loans?

Some of the benefits of student loan consolidation include:

  • Simplify the loan payoff process: If you have multiple college loans and want to just make one simple payment, you should consider consolidating your student loans. You’ll have a single payment, rather than having to send out multiple monthly payments.
  • Better organization: The convenience of having all your loans combined into one makes managing your student loans easier, as you’ll only have to work with one lender.
  • Flexible repayment options: You can lower your monthly payment to allow you to be more flexible with your finances for the short term. You can extend the payoff term up to 30 years. (Although, this will increase the total interest paid over the life of the loan.)
  • One set interest rate: If any of your loans have a variable interest rate, your new consolidated loan will now have a fixed interest rate. (Federal loans made before July 1, 2006 had a variable rate.)
  • You can pay it off early if you’d like: Under a Direct Consolidation Loan, you can prepay your loan at any time without penalty.
  • Fewer loans in your name: This may help improve your credit score since there are fewer creditors on the credit history.

Student Loan Consolidation Requirements

What are the requirements to consolidate student loans?

You can consolidate student loans at any time during your grace period or during your repayment period. (You can’t consolidate while still in school full-time.)

Only federal student loans can be combined into a Direct Consolidation Loan through the federal government. These loans include any Stafford loans, Federal Perkins loans, and PLUS loans.

If you have both private and federal student loans, you should not consolidate any federal student loans in a private student loan consolidation, as you will lose many of the borrower benefits that come with federal student loans.

Student Loan Consolidation Interest Rate

What is the interest rate on a student loan consolidation?

The interest rate on a federal student loan consolidation is the weighted average of the current interest rates on the loans being consolidated (rounded up to the nearest one-eighth of 1%). The given interest rate in a Direct Consolidation Loan remains fixed over the life of the loan.

In a private student loan consolidation, the interest rate will be based on your credit score. If you have improved your credit rating after college, you could see a better interest rate by consolidating.

Student Loan Consolidation Repayment Plans

A federal student loan consolidation provides flexible payment options. By applying for a Direct Consolidation Loan, you can take advantage of alternative repayment plans (besides the standard 10-year repayment), depending on your income and budget.

You can choose a repayment plan that best fits your current financial situation and future outlook. Borrowers can select a repayment plan anywhere from 10 to 30 years, including extended repayment, graduated repayment, and income-based. (See all payment plans here.)

A reduced monthly payment can be helpful for those who find themselves in a financial bind after college, and want to make payments that are more affordable to their current budget. Just remember the longer you spread out the repayment, the more interest that will accrue.

If you do not specify what repayment plan you want when applying, it is assumed you will be on a standard 10-year repayment.

Repayment on a federal student consolidation will begin within 60 days of consolidating, unless you qualify for a deferment or forbearance.

Student Loan Consolidation Calculator

Use the student loan consolidation calculator at finaid.org to figure out what your loan payments would be when consolidating your student loans.

How to Consolidate Student Loans

Steps for consolidating federal student loans:

  1. To apply for a Direct Consolidation Loan, go to StudentLoans.gov
  2. Select your loans and loan servicer (Loan Servicer: The company that handles the billing and management of your Direct Consolidation Loan.)
  3. Select a repayment plan
  4. Review loan terms and conditions
  5. Fill out borrower and reference information
  6. Review and sign application

You will need to sign the Direct Consolidation Loan promissory note using your Federal Student Aid PIN. A promissory note is a legal document that lists the terms and conditions of the loan and your rights and responsibilities as a borrower. A Federal Student Aid PIN serves as your digital signature for use online. (If you don't have a PIN yet, you can get one here.)

After applying for a Direct Consolidation Loan, you will be sent a summary sheet providing an overview of the new loan and the repayment terms. Review this document for accuracy and contact the loan servicer if you notice anything that is incorrect. If the loan servicer does not hear from you within the time specified in the letter, it is assumed the information is correct and they will process the consolidation.

Private Student Loan Consolidation

Private student loan consolidation is when you refinance all your existing student loans into one new loan with a private lender. You can usually consolidate both federal and private student loans in this process, but it is suggested to only consolidate private student loans in a private student loan consolidation so you can keep the favorable borrower terms of a federal loan.

If you are doing a private student loan consolidation, check with student loan consolidation companies to see if there are any fees associated with consolidating.

Because private student loan interest rates are based on your credit rating, you may be able to get a better rate by consolidating if your credit score has improved since the time you first obtained the loan.

Where to Consolidate Private Student Loans

Student Loan Consolidation Companies

The following companies will consolidate private student loans:

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