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Pros and cons of consolidating student loans

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Consolidating your student loans involves combining some or all of your federal loans into one Direct Consolidation Loan. By doing this, you’ll end up with one monthly payment instead of several with different interest rates.

Consolidation is a great way to stay on top of your monthly payments, and in some cases it’s a necessary step to access federal student loan repayment and forgiveness plans. However, there are times when consolidating may not be the best idea.

Pros of consolidating student loans

Consolidating student loans is a smart step for many federal borrowers; here are a few of the advantages:

  • Potentially lower monthly payments: Direct Consolidation Loans have a repayment timeline of up to 30 years, as opposed to the standard repayment period of 10 years. This longer repayment term can make your loans more manageable by lowering your monthly payment.
  • One payment per month: Instead of making multiple student loan payments on your federal loans, you’ll make one every month. If this move helps you avoid late payments, your credit score could also rise over time.
  • Access repayment plans: Some older student loans, such as FFEL loans and Perkins Loans, are not eligible for certain income-driven repayment plans or Public Service Loan Forgiveness (PSLF) unless consolidated. Combining those loans into a Direct Consolidation Loan would open up access to those programs.
  • Retain federal benefits: While some borrowers may consider refinancing their loans with a private lender as a way of combining several loans, choosing to instead consolidate ensures that you retain federal benefits like forbearance, income-driven repayment and COVID-19 relief.

Cons of consolidating student loans

While consolidating can be a useful tool, there are still some drawbacks to be aware of before making the decision:

  • Pay more interest over time: Choosing to pay off your loan over 30 years will lower your monthly payment but cost you more in interest over time. You’ll also be in debt for a longer period of time, which could impact other parts of your finances.
  • No lower interest rate: The primary draw of refinancing is that you can often find a lower interest rate than what you’re currently paying. With consolidation, your interest rate is calculated as the weighted-average interest rate of the loans you’re consolidating, rounded up to the nearest one-eighth of a percent. Because of this, your interest rate could be slightly higher than what you’re currently paying.
  • Lose progress toward federal forgiveness programs: Consolidating your loans could cause you lose progress you’ve made on federal programs like PSLF or an existing income-driven repayment plan.
  • Interest is added to your balance: If you have any unpaid interest on the loans that you’re consolidating, that interest will be added to your principal balance when you consolidate. Interest will then accrue on this higher balance.

Should I consolidate my student loans?

Consider loan consolidation carefully. Whether or not you should consolidate your student loans depends on the type of loans you have and your financial circumstances.

You should consolidate if:

  • You have old FFEL or Perkins Loans and want to pursue loan forgiveness.
  • You’re having trouble keeping track of your monthly payments.
  • You have a large amount of student loan debt.

You should reconsider consolidating if:

  • You don’t have many student loans.
  • You’re close to meeting the requirements for a loan forgiveness program.
  • You can pay off your loans quickly.

Can I consolidate my private student loans?

You cannot consolidate private student loans, since consolidation is done through the U.S. Department of Education. However, you can refinance your private student loans, which is a similar process in theory — you’ll trade several private loans for one new loan. This could help you manage multiple payments or get a lower monthly bill.

Should I refinance or consolidate my federal loans?

One of the biggest benefits of student loan consolidation is that it keeps your federal student loans with the federal government. While consolidation won’t necessarily save you money, it ensures that you retain access to things like the COVID-19 forbearance period and loan forgiveness options.

With that being said, some borrowers may choose to refinance instead of consolidating. When you refinance, your federal loans will turn into private loans, so you’ll lose federal benefits. However, refinancing could get you a much lower interest rate on your loans, which could help you pay them off faster and more cheaply.

Next steps

Before applying for a Direct Consolidation Loan, consider what you stand to gain and lose. Once you’ve evaluated your financial situation and have decided that consolidating is the route you want to pursue, you’ll apply via an online application on the Federal Student Aid website.

If you’re stuck on figuring out your next move, the Department of Education’s Loan Simulator can help you decide whether you should consolidate or not. You can also run the numbers with a refinancing calculator to better compare the impact to your loan cost.

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Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Student loans editor