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How To Consolidate Your Student Loans

how to consolidate your student loans

When you have multiple student loans, sometimes consolidating them into one single payment can be beneficial to your wallet (and your sanity). There are two types of student loan consolidation: federal and private. 

What’s the difference?


Consolidating Federal Student Loans

This type of consolidation merges multiple federal student loans into one federal loan with a single loan bill through the Department of Education. In order to be eligible for certain federal loan repayment programs, consolidation might be necessary. Unlike refinancing, federal consolidation will not lower your interest rates. However, it can lower your payments by extending them

There is no credit requirement for consolidating federal student loans. Consolidating your federal student loans is FREE through the Department of Education.

Should you consolidate your federal student loans? 

It is worth considering if you need to consolidate your federal student loans in order to be eligible for income-driven repayment plans or public service loan forgiveness. Specifically with Perkins, parent PLUS loans and Federal Family Education. Also, if you seek a single federal loan payment or are in student loan default and are looking to get back on track.

Once you leave school, drop below half-time enrollment or graduate, you are usually eligible to consolidate these student loans. When you choose to consolidate, the government pays them off and replaces them with a direct consolidation loan. Keep in mind that your new fixed interest rate will be the weighted average of your previous rates and the loan term can range from 10 to 30 years. 

To apply for direct loan consolidation, you must fill out this application through the Department of Education. 


Consolidating Private Student Loans

This financial move happens through a private lender, also known as refinancing, in which private and/or federal student loans are combined into a single private loan. Therefore, you have a single payment every month instead of paying separate student loans. If you end up qualifying for this, you may find yourself saving money by receiving a lower interest rate. Keep in mind that these rates range from 2% to over 9%. 

Your new interest rate will be dictated by your financial history: credit score, job history, income, and educational background. Additionally, your credit score should be in the high 600s to qualify. 

Should you refinance your private student loans?

If you have a stable job, made on-time student loan payments after graduating, maintained a good or excellent credit (690+ scores) and have access to a co-signer… you should consider refinancing. 

However, refinancing federal student loans means losing access to borrower protections specific to federal loans. This includes income-driven repayment plan options and student loan forgiveness. Try calculating the best option for you with a consolidation calculator

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Asher Wu

Asher Wu

Asher Wu though young in age, is an expert in the field of investing as an investment banking analyst. He has been in his career since well before he graduated, securing an internship in his junior year due to his impressive resume and involvement at his university.