Student loan consolidation is the process of taking multiple outstanding loans and reorganizing them into one monthly payment. Consolidation loans like the Stafford Loans, for example, can help make this possible with Direct and Federal Family Education Loan (FFEL) consolidation programs.

When you opt for student loan consolidation, you’re working with a lender who will pay off your existing balances. They will, then, replace those loans with a new, consolidated loan and a new monthly payment. For any college grads overwhelmed by multiple student loans, this can be extremely helpful.

Student loan consolidation vs. refinancing

The difference between student loan consolidation and refinancing is a subtle distinction but no less important. Both methods involve taking out a new loan to better manage multiple, outstanding balances.

However, refinancing allows the borrower to seek better interest rates and repayment terms. These, in turn, can yield more possibilities as far as reducing your monthly payments and total amount of student debt. A good credit history is also ideal if you are planning to refinance.

Federal versus private consolidation

The key terms for federal consolidation loans do not vary by lender: no application or origination fees are allowed and there are no prepayment penalties. Federal law sets the period of time for paying back the loans and sets a ceiling on the interest rate.

Private consolidation lenders, on the other hand, are not subject to those terms and may include variable rates and any number of fees. What’s more, some benefits of a federal consolidation loan, such as interest subsidies on deferred loans, are not available on private loans.

Consolidating offers several benefits:
  • You have just one check to write each month and just one repayment plan to track.
  • You lock in a fixed interest rate that takes the sweat out of variable-rate loans. When interest rates are low, consolidating loans can save a great deal of money.
  • You can extend your repayment timetable from 10 years up to 30 years, depending on the size of your debt, so you can shrink your monthly payments. A consolidation loan may lower your monthly loan payments by as much as 40 percent.

Yet despite the appeal — and its popularity — student loan consolidation isn’t for everyone. Here are some frequently asked questions and answers that may help determine if it’s the right move for you.

Should I consolidate?

  • Consolidation can extend the life of your loan and trim your monthly payment.
  • It offers the simplicity of one monthly payment.

If you need more cash in your pocket right now, consolidation can help by extending the life of your loan and thus trimming your monthly payments — although the length of your repayment terms will depend on the amount of debt you have, and you may not be able to extend at all. But if interest rates are low you can lock in long-term savings, since less of your money will go to interest. You may also have access to a new repayment schedule (like an income-contingent plan) that’s a little easier on your wallet. If you don’t care about the extra cash and just want a consolidation for the simplicity of a single monthly payment, you can use any money you save to pay down the principal. (There are no prepayment penalties for student consolidation loans.)

How long does the student loan consolidation process take?

On sites like StudentLoans.gov, the student loan consolidation process must be completed in one single session. In most cases, this process can take less than 30 minutes.

What will I need to complete the student loan consolidation process?

You will need a verified Federal Student Aid (FSA) ID as well as personal information and financial information. StudentLoans.gov defines these as follows:

Personal Information

  • Permanent Address
  • E-mail Address
  • Telephone Number
  • Mobile Phone Number
  • Best Time to Reach

Financial Information

When is consolidation a bad idea?

  • Not worth the hassle if you’re a couple of years or a few thousand dollars away from pay-off.
  • Switching to a new lender might eliminate existing benefits or perks.
  • Makes it impossible to have a Perkins Loan forgiven or reduced.

If you have only a couple more years or a few thousand more dollars to go till you pay off your student loans, consolidation is probably more hassle than it’s worth. Switching to a new lending institution might eliminate any benefits you’ve earned, like lower interest rates for on-time payments over the years. Plus, consolidating could make it impossible for you to have a Perkins Loan forgiven or reduced. If you can handle your monthly loan payment as is, carefully investigate how consolidating will change the total amount you’re expected to repay.

Who can consolidate my loans?

  • Private lending institutions with government approval.
  • The Department of Education.
  • FinAid.org keeps a list of potential student loan institutions, private companies, etc.

You can get a consolidation loan from any private lending institution with government approval, or from the Department of Education itself. Not all consolidators are created equal, however. Some offer favorable terms like interest-rate reduction for making on-time payments or choosing automatic withdrawal; others may offer repayment plans that better suit your financial situation. FinAid.org maintains a list of student loan institutions, including large banks; private companies like Sallie Mae; and state education system lenders like the Missouri Higher Education Loan Authority and the Utah Higher Education Assistance Authority. You should do enough research to be able to negotiate the most favorable terms. Public and private loans can’t be combined, but if you have multiple private loans, you can consolidate those, too; contact your lending institutions to find out how.

When should I do it?

  • When you’ve finished college but before your grace period ends.
  • You can consolidate any time if you’ve already been paying off your loans.

If you’re just finishing college, you’ll want to consolidate your loans after you graduate but before your grace period ends, so that you can take advantage of the lower in-school interest rate (the 91-day T-bill rate plus 1.7 percent, rather than the standard repayment rate of T-bill rate plus 2.3 percent). Timing is everything: You’ll need to complete all the paperwork and have it processed and approved before repayment begins. The downside is that your grace period will end once your consolidation loan goes through. If you’ve already been paying off your loans for a while, you can consolidate at any time.

How can I get the best interest rate?

  • You can get an idea of what your interest rate might look like by using an online calculator.
  • Ask your lender about possible rate fluctuations.

Interest rates are determined by the federal government and change each year on July 1, so check with a lender to get their take on possible rate fluctuation.

Can I consolidate more than once?

Current law dictates that you can only consolidate once, so if you consolidate at a 6 percent interest rate and rates later drop to 3 percent, you’re out of luck. There are two exceptions: if you’ve since gone back to school and acquired new student loans, or if an outstanding loan was excluded from your original consolidation. In those cases, you may be able to have another go at it.

What types of loans can be consolidated?

The following types of loans are eligible for consolidation:

  • Subsidized Federal Stafford Loans
  • Unsubsidized 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

Can I bundle my student loans with my spouse’s?

  • Yes, but consider this option carefully.
  • Both parties will be held accountable even if the marriage does not last.
  • You won’t be able to use in-school loan deferment.

Yes, a married couple can jointly consolidate their loans, but it may not be a good idea. To do so, you’ll both have to agree to assume full responsibility for payment of the debt. So if your marriage ends in divorce, your loans will still be living together and one ex-spouse will be held responsible if the other refuses to pay up. You also won’t be able to get an in-school loan deferment, because both of you would have to be enrolled to qualify.

Will I lose the interest subsidy on my subsidized loans?

No. Although your existing loans will be packaged as one larger loan, your subsidized and unsubsidized loans are grouped so that you won’t be held responsible for extra interest on subsidized loans.

How is loan serialization different from consolidation?

With loan serialization, a single lender buys your student loans and “stacks” them; you maintain your original terms and interest rates, but pay the loans off one at a time, starting with the loan with the worst interest rate. Unlike with refinancing, serialization won’t lock in a good interest rate. Perkins Loans cannot be serialized.

What fees can I expect to pay?

You shouldn’t pay origination or any other fees to get a consolidation loan.

How do I apply for a consolidation loan?

  • Most lenders offer both online and paper applications.
  • Provide basic personal contact information.
  • Specify the type of loan you want, the balance, the current loan holder.
  • Provide employer’s name and contact information.
  • Provide educational institution and some references.
  • Submit application and wait for approval.
  • Review the paperwork carefully before signing.
  • Receive notification and a new repayment schedule once approved

Most lending institutions, including the federal government, offer both online and paper applications. If you have all Direct Loans, you can even apply by phone. Besides basic personal contact information, you’ll need to be able to provide data on the type of loan you have, its balance, and the current loan holder. You’ll also be asked to provide your employer’s name and contact information, the name of your school, and the names of a few references, such as professors or employers. Ask the lender you’ve chosen for an application, complete it, and then wait for them to send you the paperwork to sign. Go over everything carefully for accuracy, because the lending institution will check to verify that the information you provided is true. Once your loan has been approved, you’ll receive notification and a new repayment schedule from your new loan holder.