Should I Consolidate My Student Loans?

Written by: Matt Kuncaitis
Updated: 4/08/21

Student loan consolidation is the process of combining multiple education loans into a single loan payment. The term “consolidation” in the context of student loans usually refers to a refinancing of one or more federal student loans into a new “Direct Consolidation Loan.” Only federal student loans are eligible. A similar process for combining federal and/or private student loans into a new loan is usually referred to a “student loan refinancing.” Even though both options combine student loans in some way, the terms are not interchangeable, and the processes are different. 

Federal student loan consolidation combines federal loan debts into a new loan from the U.S. Department of Education. Federal consolidation may not lower your interest rates. In fact, with a consolidation loan, your new interest rate will be the weighted average rate of your original loans rounded up to the nearest .125%. However, you will retain eligibility for federal loan repayment and forgiveness programs through consolidation. If you have an older type of federal student loans, usually referred to as “FFELP Loans,” that were originated prior to 2010, then consolidation will provide eligibility for repayment programs that are not available to FFELP borrowers.

Read on for more discussion on student loan consolidation and its pros and cons. 

What Is Federal Student Loan Consolidation?

A federal student loan consolidation allows you to combine multiple federal student loans into one loan through a Direct Consolidation Loan. You can only consolidate federal student loans, but it can still be beneficial if you’re making multiple payments to different loan servicers. You can simplify your loan repayment by having just one monthly bill. 

Consolidation may also qualify you for income-driven repayment or Public Service Loan Forgiveness (PSLF) programs. The best part is that there are no fees to consolidate your federal student loans. You can quickly process your application online through

Do You Qualify for Federal Student Loan Consolidation?

Federal student loan consolidation doesn’t require a check into your credit score, but there are still some eligibility requirements, such as:

  • The loans you’re planning to consolidate must be in repayment or grace period.
  • You may consolidate an existing consolidation loan if you include an additional eligible loan in the application.
  • To consolidate a loan you defaulted on, you must make three full and on-time consecutive monthly payments, or you must agree to repay your new Direct Consolidation Loan under the following repayment plans: Income-Based Repayment Plan, Pay As You Earn Repayment Plan, Revised Pay As You Earn Repayment Plan, or Income-Contingent Repayment Plan.

Consult the Federal Student Aid website for more eligibility requirements, especially if you’re reconsolidating an existing Federal Family Education Loan (FFEL) Consolidation Loan without including any additional loans. Before you apply, you can contact the Student Loan Support Center at 1-800-557-7394 if you have any questions about Direct Loan consolidation. 

What Are the Benefits of Consolidating Federal Student Loans?

When you agree to consolidate your federal student loans, a Direct Consolidation Loan replaces your loans. Consolidating federal student loans can be wise for several reasons, depending on your financial situation and needs. We’ll explore some of the benefits of consolidating your federal student loans below.  

Lower Monthly Payments

When you consolidate, you’ll get a new loan term ranging from 10 to 30 years, depending on how much you owe. Extending your term helps lower your monthly payments. 

You’re eligible to consolidate your payments at any time once you graduate, leave school, or drop below half-time enrollment. 

New Repayment Options

A federal student loan consolidation allows you to choose a new repayment plan. Your loan servicer will provide you with estimated repayment information under each plan. So, you can see the difference between the potential options and make an informed decision on which suits your needs the best.

You can pick a repayment timeline based on your loan balance. Consolidation also gives you access to additional income-driven repayment plan options and forgiveness programs, such as Public Service Loan Forgiveness. However, if you are a parent borrower, an income-driven payment option is only available through consolidating your parent PLUS loans. 

One Student Loan Payment

Consolidation will combine multiple student loan debts into one payment with a fixed rate to one loan servicer. This simplifies your due date, and you’ll only need to keep track of one bill. 

Switch Variable Rate to Fixed Rate Interest

A Direct Consolidation Loan with the U.S. Department of Education has a fixed interest rate for the life of your new loan. The fixed rate is the weighted average of the interest rates on the debts consolidated, rounded up to the nearest one-eighth of 1% or 0.125%. 

Unfortunately, there is no cap on how high your interest rate can reach with federal consolidation. However, with a fixed interest rate, you don’t have to worry about variable interest rates. You’ll also know the set amount you’ll pay monthly for the life of your new loan. Learn more about interest rates here

Pick Your Federal Loan Servicer

When you take out a federal student loan, your loan servicer — private companies contracted by the government to manage student loans — is assigned to you by the U.S. Department of Education. If you’re not satisfied with your current servicer’s customer service, you may be able to switch from one loan servicer to another to manage your new loan when you consolidate. 

What Are the Downsides to Consolidating Federal Student Loans?

To help you weigh your options before you make a decision, below is a list of the disadvantages of consolidating your federal student loans. It’s best to take these into account before taking the next step.

Interest Rates Will Rise

When you combine your federal loans into a single payment, you agree to a new fixed interest rate calculated from the weighted average of your previous rates, rounded up to the next one-eighth of 1% or 0.125%. Since it’s the average of your previous rates, the result will be higher.

For instance, if you’re combining three loans with interest rates of 7.15%, 5.25%, and 3.25%, your new interest rate will be 5.25%. Your new interest rate lowered the high interest rate of 7.15% and raised the interest rate of your loan from 3.25% to 5.25%. 

Total Payment Amount Is Higher Over Time

A Direct Consolidation Loan generally extends your repayment term, which means lower monthly payments. Having lower monthly payments are beneficial if you have difficulty making payments. However, consolidation may not save you money over time because:

  • Any outstanding interest on the loans that you consolidate becomes part of the principal balance on your new consolidation loan.
  • Extending your repayment term also increases the interest and total amount of money you’ll pay on the loan over time.

Loss of Borrower Benefits

There are various federal education loans. So, it also follows that eligibility requirements and repayment terms are different for each kind, which means you should consider the borrower benefits of a loan before you decide to include it in a consolidation loan. Examples of benefits you may lose with consolidation are:

  • Interest rate discounts, principal rebates, or some loan cancellation benefits associated with your current loans
  • Any grace period or deferment with your current loan program
  • Any access and enrollment to loan forgiveness options, e.g., Perkins Loans
  • Any qualifying payments you’ve made toward Public Service Loan Forgiveness
  • Any credits you have with income-driven repayment plans

If you’re looking to consolidate, this list of downsides is not meant to discourage you. It’s meant to help you consider the benefits and disadvantages of your options. Be advised that you can still consolidate without including loans where you’ll lose benefits or where you’re working toward earning certain forgiveness options. 

How to Apply for a Direct Consolidation Loan

The application process for a Direct Consolidation Loan is simpler than most people think. You can follow a walk-through of how to complete the process in this presentation. When you’re ready to complete your application, gather your documents and set aside at least 30 minutes because you’ll need to fill out and complete your application in one session. Here’s how to complete the application process:

  1. Log in to and click on “Complete Consolidation Loan Application and Promissory Note.”
  2. Select the loans you want to include in the consolidation. In this step, you may also choose to delay processing if you are consolidating one loan currently in a grace period. Similarly, you may choose to stay with your current loan servicer, or you may select a different servicer. 
  3. Choose a repayment plan. You can choose from a repayment timeline based on your loan balance or select an income-driven plan. If you don’t actively pick a repayment plan, your loan servicer will apply the Standard Repayment Plan. If you choose an income-driven plan, your monthly payment will be based on your adjusted gross income, family size, state of residence, and tax filing status. Don’t forget to fill out the Income-Driven Repayment Plan Request. 
  4. Read and understand the terms and conditions. 
  5. Complete the personal information for yourself and your references. 
  6. Review and sign your application.  

You can also download the forms and print a paper application and submit it by mail. Upon receipt of your application, the loan servicer you selected will complete the consolidation process. However, unless the loans you included on your consolidation application are in a deferment, forbearance, or grace period, you should continue making payments on your loans. 

Keep making payments until your servicer tells you that your new Direct Consolidation Loan is in effect. Your new repayment term will generally start within 60 days after your loans are paid out. Your loan servicer will let you know when your first payment is due.

Can You Consolidate Private Student Loans?

Technically yes, but it’s called student loan refinancing for private student loans. While you can’t transfer private student loans to the federal government, you can combine federal and private student loans into a single loan through a private lender. However, remember that if you choose to refinance your federal loans through a private lender, you lose access to income-based repayment and forgiveness programs. 

Your interest rates and student loan repayment terms will depend on your credit report and current financial circumstances with a refinancing. So, if you have a good credit history and employment stability, you may lower your interest rates and negotiate favorable loan terms. If you’re also looking to pay off your debts quickly with a shorter repayment period and higher monthly payments, you can do so with refinancing. Read more about consolidation and refinancing here.

With a little bit of research and understanding of the implications of your decisions, you may lower your interest rates on some of your loans and still keep working toward loan forgiveness on your other loans. You just have to weigh your options and decide whether it will help you financially to refinance or consolidate your student loan debts.

Let Help You Consolidate and Refinance Your Loans

The decision to consolidate or refinance your student loans can significantly impact your budget and financial goals. To weigh your options about consolidating or refinancing your student loans, take the time to understand and calculate how much you owe and your current interest rates and how long it will take for you to pay off your loans at those rates.

Compare the loan amount you’re paying now and the estimated payments you’ll make over time with each option. It’s best to see the actual numbers and know what you’re saying “yes” to before you sign on the dotted line.

At, we help potential and current borrowers understand loan terms, learn more about online federal and private lenders, and explore loan options. Finding the best consolidation or refinancing options for your needs doesn’t have to be complicated. We provide the right information to help make the repayment process easier. Check out our resources today.