How to consolidate student loans & why you might want to
Federal student loans can be consolidated — that is, combined into a single loan — through the U.S. Department of Education’s Direct Consolidation Loan program. Though this can mean paying more interest over time, it can also lower your monthly payment and help you qualify for income-driven repayment options.
Private student loans can be combined through a process more commonly referred to as refinancing. However, refinancing and consolidation aren’t the same thing, even if they both combine multiple loans into one.
How to consolidate federal student loans
There are a few steps that need to be completed before you can consolidate your federal student loans.
- Complete an application form for direct consolidation. This can be done online or by mail. Processing your application takes around six weeks, according to the U.S. Department of Education.
- Review your loan summary statement. About two weeks before your new consolidation loan is disbursed, you should receive a loan summary statement from the new servicer. This document will outline the details of your new loan, including the total balance, interest rate, repayment schedule and your first payment date.
- Maintain regular payments. In the meantime, you should continue making payments to avoid credit or financial consequences.
Consolidation requirements for federal student loans
The U.S. Department of Education sets requirements for consolidating your federal student loans. For starters, to consolidate student loans, they must be in either the grace period or active repayment status.
If you are in default, you’ll need to make an approved repayment arrangement before you can consolidate student loans. As an alternative, you may be able to set up your new Direct Consolidation Loan under one of four income-driven repayment (IDR) plans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Saving on a Valuable Education (SAVE)
- Income-Contingent Repayment (ICR)
In general, you can’t consolidate an existing federal consolidation loan. However, there’s an exception to this rule if you include another eligible student loan in your new consolidation.
The Department of Education might also allow you to reconsolidate an existing FFEL Consolidation Loan that’s past due or in default if you can qualify for a new income-driven repayment plan.
Additionally, only certain federal student loans are eligible for consolidation, including federal Direct Loans and parent PLUS Loans.
Can you separate Joint Consolidation Loans?
The Joint Consolidation Loan Separation Act went into effect in October 2024. If you have a Joint Consolidation Loan — a federal loan type phased out in 2006 — and wish to separate your balance from that of your co-borrower, you may now do so by filling out a new form from the U.S. Department of Education. Completing the form also makes you eligible for a one-time income-driven repayment count adjustment.
Both co-borrowers may submit a joint application. Alternatively, individual borrowers can submit an application if they have “experienced domestic violence by the other co-borrower; have experienced economic abuse from the other co-borrower; or are unable to reasonably access the other co-borrower’s loan information,” according to an ED announcement.
After these applications are approved, each co-borrower’s loans will be separated. They are then consolidated into individual Direct Consolidation Loans for each borrower.
How to “consolidate” private student loans
While you can combine multiple debts from multiple private loan servicers via student loan refinancing, industry insiders don’t typically call this “consolidation.” That term is reserved for combining federal loans via a Direct Consolidation Loan.
If you want to combine private student loans, compare refinance loan rates with multiple lenders. You should also consider getting prequalified, which will require some information about your finances. After you have identified which lender will be the best fit for your financial situation, apply for a consolidation loan. This will merge your existing student loans — potentially from multiple lenders — into one larger loan with a single servicer.
However, we recommend against combining federal loans by refinancing with a private lender, because it means giving up federal protections and access to borrower-friendly repayment plans.
Refinancing requirements for private student loans
You must meet certain refinancing requirements to qualify, such as proof of a steady income, a completed degree and a solid credit score. Exact financial and credit score requirements vary among lenders. The application process will also require documents such as your Social Security number, driver’s license or government ID, loan payoff statements from your existing lenders or servicers and proof of employment, including pay stubs or W-2 forms.
Should you consolidate your student loans?
Consolidating your federal student loans might make more sense if you have federal student loans and a poor credit score, you need to bring your loans current or you want to hang onto your federal student loan benefits.
On the other hand, if you’re looking for a lower interest rate and aren’t planning on using any federal benefits, refinancing your student loans with a private lender might be a good fit. Refinancing is the only option for combining existing private student loans.
To help you choose the best way to consolidate student loans, use a student loan refinance calculator to help you crunch the numbers. The U.S. Department of Education also provides a Loan Simulator tool to assist you.
Advantages of consolidation
- Longer repayment periods: If you need more cash in your pocket right now, consolidating your federal student loans may help you extend the life of your loan. This longer repayment period generally reduces the size of your monthly payments.
- One convenient monthly payment: Consolidating, like refinancing, has the effect of combining multiple monthly payments into one.
- Retain federal student loan benefits: When you consolidate federal student loans, you can still take advantage of income-driven repayment plans, forgiveness options and repayment hardship plans in the future. These benefits no longer apply if you refinance your loans with a private lender.
- Potentially qualify for new benefits: In some cases, consolidating federal student loans may help you qualify for an income-driven repayment plan or Public Service Loan Forgiveness (PSLF). Borrowers with federal Direct Loans or Federal Family Education Loan Program (FFELP) loans who consolidate their loans on or after Sept. 1, 2024, will have any eligible payments from before consolidation counted toward their PSLF progress.
Disadvantages of consolidation
- Potentially higher interest rate: The interest rate on your new loan will be the weighted average of the loans you consolidate, rounded up to the nearest eighth of a percent. While you might qualify for a lower interest rate if you refinance to a private loan, consolidation doesn’t come with the same potential benefit.
- Higher overall interest: Extending your repayment timeline will ultimately increase the total amount you pay in interest.
Alternatives to student loan consolidation
Borrowers often seek to consolidate their student loans to lower their interest rates or monthly payments. Alternatively, you can determine your current or future eligibility for student loan forgiveness.
If your main goal is reducing your monthly payment, you should also look into income-driven repayment (IDR) options. As with loan forgiveness, these are only available for federal loan borrowers. Both can limit your monthly payment to a percentage of your income based on family size.
Bottom line
If you have federal student loans and want to merge your monthly payments without losing federal benefits, your only option is to consolidate through the Direct Consolidation Loan program. But before you do this, consider potential drawbacks.
For example, if you choose a longer repayment term, you could pay more in interest over the life of the loan. Plus, unlike student loan refinancing, consolidating your loan won’t allow you to lower your overall interest rate. Understanding the pros and cons of consolidating your loans can help you make the best financial decision for both your education and your financial future.
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