Key takeaways

  • Student loan refinancing and student loan consolidation are similar but different. Each process has benefits and limitations.
  • Student loan consolidation will not hurt your credit score and your new interest rate will be based on the weighted average of your existing loans. Refinancing with a private lender requires a hard credit check and can temporarily impact your credit score and earn you a lower interest rate if you qualify.
  • Consolidating your federal student loans will result in a single monthly payment. You will retain the protections and benefits reserved for federal loan borrowers.

Student loan consolidation is taking multiple student loans and reorganizing them into a single new loan. Federal student loans are eligible for consolidation through the U.S. Department of Education’s Direct Consolidation Loan program and private lenders. In addition, private student loans can be consolidated through a process more commonly referred to as refinancing.

When you consolidate the Direct Loan Consolidation program, the new loan may feature a longer repayment period and a lower monthly payment. However, your interest costs may be higher over time after consolidation due to extending your repayment period. Consolidation may be a potential solution if you’re struggling with student loan payments.

How is student loan consolidation different from student loan refinancing?

While the processes are similar, student loan consolidation differs from student loan refinancing. Each has advantages and disadvantages; understanding the nuances can help you select the right process for you when it comes to your student debt.

Student loan consolidation is an option when you have multiple federal loans outstanding. Consolidation rolls several loans into one larger loan and a single monthly payment. This sometimes involves extending the loan repayment period to further lower monthly payments. Your new interest rate will be based on the weighted average of your existing loans.

Student loan refinancing involves moving loan debt from multiple servicers to a single private lender. This can lead to a single, lower overall interest rate and monthly payment. While consolidation retains the benefits of federal loans and repayment terms, refinancing moves your debt to a private lender. Though refinancing can save you money in the long run, it means relinquishing any benefits you may have had as a federal loan borrower. Your interest rate will be based on your eligibility and creditworthiness, which vary depending on the lender.

Refinancing Consolidation
Will my interest rate change? Potentially No
Will my monthly payment be lower? Maybe (this will depend on your selected repayment term and new interest rate) Maybe (your repayment term may be longer– if so, your monthly payment may be lower)
Can I save money overall? Yes No
Can I keep my federal loan repayment options, forgiveness eligibility, and protections? No Yes
Can I merge federal and private loans into one monthly payment? Yes No

Should you consolidate your student loans?

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 consolidation option if your existing loans are private.

On the other hand, if you have federal student loans and a poor credit score, or you need to bring your loans current or want to hang onto your federal student loan benefits, consolidating your federal student loans might make more sense.

Advantages of consolidation

The main benefits of federal student loan consolidation include:

  • 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 will generally reduce 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. If you refinance your loans with a private lender, these benefits no longer apply.
  • 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). If you consolidate before May 1, 2023, any payments you made before consolidation while working for an eligible employer will count toward your monthly payment requirement.

Disadvantages of consolidation

Federal student loan consolidation isn’t the right option for everyone. Some drawbacks to consider are:

  • 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.
  • Potential loss of certain benefits: Consolidation may result in the loss of some borrower benefits, like discounts on interest rates, principal rebates and certain student loan cancellation options.

How to decide which is right for you

Before choosing between consolidation and refinancing, 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 in the decision-making process.

As with any financial decision, it’s important to do your homework before consolidating your federal student loans. One of the best ways to determine whether consolidation is the right move in your situation is to compare the benefits and drawbacks.

What are the requirements to consolidate student loans?

To consolidate your student debt, your loans must all be eligible for consolidation. Private loans are not eligible for consolidation through the Department of Education, though you may roll them into a single refinanced loan with a private lender.

Different lenders have different requirements when it comes to qualifying for debt consolidation. They will generally consider criteria including:

  • Your debt-to-income ratio
  • Your college degree (if you completed one)
  • Your income and employment information, including proof of employment and information about how long you’ve been in your current position
  • Your credit score
  • Information about your other debts, including your mortgage, auto loan, and credit cards

Be prepared to provide information about your finances and personal history for lenders to assess your creditworthiness. You may qualify to borrow with some lenders but not with others, depending on your background, financial history and education.

Private student loan

When consolidating or refinancing private student loans a lender will review your overall financial picture. This review includes your credit score, income, employment history and education. To qualify for private student loan refinancing, you’ll need a steady income and a solid credit score of about 670. Specific qualification requirements may vary from lender to lender as this information is rarely made public.

The application process will also require providing documents such as your Social Security number, Driver’s license or government ID, loan payoff statements from your existing loan lenders or servicers and proof of employment.

Federal student loan

The U.S. Department of Education sets forth certain requirements that you’ll need to satisfy to consolidate your federal student loans. For starters, any loans you wish to consolidate must be in either the grace period or active repayment status.

If your loans default, you’ll need to make an approved repayment arrangement (i.e., three back-to-back monthly payments) before you can consolidate. As an alternative, you may be able to set up your new Direct Consolidation Loan under one of four income-driven repayment plans: Income-Based Repayment, Pay As You Earn, Revised Pay As You Earn and Income-Contingent Repayment.

In general, you can’t consolidate an existing federal consolidation loan. There’s an exception to this rule, however, 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.

On top of the requirements above, only certain federal student loans are eligible for consolidation:

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

How do you consolidate your student loans?

The steps to consolidate your student loans will depend on whether your debt is funded privately or federally.

How to consolidate private student loans

Consolidating private student loans, known as refinancing, is much like any other debt consolidation process. You will want to compare the rates available with different lenders and 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.

How to consolidate federal student loans

To consolidate your federal student loans, first complete an application form for direct consolidation either online or by mail. Once you have selected a repayment plan and loan servicer, your application will be processed, which you can expect to take around six weeks, according to the U.S. Department of Education.

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, and repayment schedule. You will have 10 business days from receiving this statement to review the information included and cancel your application if you change your mind. Otherwise, the statement should include specifics about your first payment due date.

“You should continue to make your regular payments on your loans if payments are currently due until your consolidation has been approved,” says Jessica Ferastoaru, student loans specialist for Take Charge America. “Once approved, you will have one monthly payment due to the new servicer managing your Direct Consolidation Loan.”

What are the alternatives to student loan consolidation?

Borrowers often seek to consolidate their student loans to lower their interest rates or monthly payments – in some cases, both. Alternatively, you may learn whether you are eligible (or will be in the future) for student loan forgiveness.

If your main objective is making your monthly payment more manageable, you may also look into income-driven repayment (IDR) options. As with loan forgiveness, these are only available for federal loan borrowers– but both can limit your monthly burden to a percentage of your income, based on family size.

The bottom line

If you have federal student loans and want to merge your monthly payments into one payment without losing federal benefits — access to Public Service Loan Forgiveness and IDR plans, for example — your only option is to consolidate your student loans 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.

Frequently asked questions

  • Federal student loan consolidation does not require a credit check and will not hurt your credit score. If you refinance your loans through a private lender, you will likely undergo a hard credit check, which can temporarily impact your credit score.
  • Federally consolidated student loans remain eligible for forgiveness programs. However, if you refinance through a private lender, you will no longer be eligible for federal student debt forgiveness programs.
  • Privately funded student loans cannot be consolidated; they can only be combined through a process known as refinancing.
  • Federal loan consolidation does not require a specific credit score. For refinancing, every lender has different eligibility requirements. Generally speaking, a credit score of 650 or higher is a common threshold to refinance student loans with a private lender.