Should You Consolidate Your Student Loans?

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Edited byAmy Wilder
Edited byAmy Wilder

Updated: August 31, 2023

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Student loan consolidation combines all your student debts, leaving you with a single monthly payment and interest rate to consider. This makes it easier to manage finances and can help you save money in the long run, as it can allow you to reduce interest or lower your payments.

You have two options for consolidating student loans: private or federal. Private student loan consolidation is offered by lenders like banks and credit unions, while federal consolidation is available through the government. The one you opt for will depend on the type of student loans you have.

Key Takeaways

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Student loan consolidation combines multiple student loans into a single new loan.

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There are two types of student loan consolidation: federal and private. Federal consolidation is only available for federal student loans, while private consolidation can include private and federal student loans.

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If you’re dealing with multiple student loans, consolidating can help make managing your finances easier.

How Does Student Loan Consolidation Work?

Student loan consolidation combines multiple student debts through a single provider. By consolidating loans, you will only have to manage one monthly payment and interest rate. There are two types of student loan consolidation options: private and federal.

Banks, credit unions and online lenders offer private consolidation loans, which are available to borrowers of private and federal loans. Consolidation loans allow you to get a new repayment schedule, rates or term length. However, consolidating may also come with new fees, such as an origination fee or higher late payment fees.

Federal consolidation offered as a Direct Consolidation Loan, is only available for federal student debt. You cannot use federal consolidation for private student loans. The U.S. Department of Education offers this program, allowing borrowers to consolidate multiple federal loans at no extra cost. This program comes with a fixed interest rate, so your payments will not fluctuate over time.

Consolidating Private Student Loans

Consolidating private student loans with a private lender is similar to applying for a regular personal loan. Lenders will look at your financial history and personal background to determine your rates and terms. If you are a few years out of university and have built a solid and stable financial history, you are more likely to get better terms from traditional lenders. This can ease the burden of multiple monthly payments and allow you to reach financial goals, such as eliminating debt, sooner.

Consolidating student loans through private lenders also allows you to consolidate federal and private loans. However, it is still usually better to consolidate federal loans through federal programs, as federal consolidation can offer more favorable rates.

Keep in mind that if you don’t have a positive financial history, you may not be able to benefit from a private consolidation loan. For instance, you may end up with a higher overall interest rate and be unable to pay off your debt. This can tank your credit score and make it harder to reach your financial goals. Consolidating student loans through private lenders should only be done if you are sure you can repay the new loan.

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Private student loan consolidation can be beneficial if you have a good credit history. Some of the benefits include:

  • Being able to renegotiate and get better repayment terms.
  • Getting a lower interest rate.
  • Having more time to repay your debt.
  • Simplifying your finances with only one monthly payment.

Consolidating Federal Student Loans

Federal student loan consolidation involves replacing your old federal student loan with a new loan called a Direct Consolidation Loan. The Department of Education offers a Direct Consolidation Loan with no origination fee. It only requires a promissory note and application form, with the entire Direct Consolidation Loan application process taking less than 30 minutes. Once approved, the federal government will pay off outstanding federal student loans and replace them with your new Direct Consolidation Loan.

You cannot consolidate private student loans using a Direct Consolidation Loan. You can only consolidate federal student loans under the Department of Education’s consolidation loan. If you have a mixture of federal and private student loans and want to consolidate those, you may be better off with a private lender.

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Consolidating federal student loans through a Direct Consolidation Loan can come with a host of benefits, such as:

  • Eligibility for government-sponsored student loan repayment programs.
  • A single, fixed interest rate as opposed to managing multiple interest rates.
  • Having only one loan payment instead of multiple payments.
  • Retaining federal forbearance or deferment options.
  • Retaining federal benefits.
  • Having more time to repay your student loans.

Pros & Cons of Student Loan Consolidation

Student loan consolidation is popular because many benefits are involved. However, consolidation does come with its downsides. Review a few of the pros and cons below.

Advantages of Consolidating Student Loans
  • Easier loan management: Having only one loan to pay makes it easier to keep track of your finances.
  • Lower monthly payments: If your credit history has improved since you initially took out your student loans, you might get lower monthly payments.
  • More competitive rates: Lenders might give you better rates than your original student loans if you have a positive credit history.
  • Longer time to repay debt: Consolidating student loans means taking out a new loan, which can reset your payment period.
  • Retain federal benefits (with federal student loan consolidation): If you are taking out a Direct Consolidation Loan for your federal student loans, you will retain the benefits the government offers.
Disadvantages of Consolidating Student Loans
  • The principal will increase: Unpaid interest on your student loans will go towards your new consolidation loan, increasing your overall principal.
  • Interest rates may go up: If you have a less-than-stellar credit history, you may have a higher interest rate.
  • Potential to lose government benefits: If you consolidate your loans, you could lose progress on federal programs, such as income-driven repayment plans.
  • Potential to pay more over time: If your interest rate is higher or your principal increases, you may have to pay more over time compared to not consolidating your debt.

Student Loan Consolidation vs. Refinancing

When it comes to managing your student loans and lightening your load, there are two avenues you can consider: consolidation and refinancing. Both consolidation and refinancing involve rolling multiple loans into one.

For federal student loans, direct consolidation through the government is the only way to retain federal benefits, and you cannot roll private loans into this option. On the other hand, you can refinance loans through private lenders to lower your rates or get better repayment terms. You can also include both federal and private loans in a private refinance or consolidation loan.

Dive deeper into the differences between the two below:

Comparing Student Loan Consolidation & Refinancing
Student Loan Consolidation
Student Loan Refinancing

What it Does

Lets you merge multiple
federal loans into a single
federal loan

Lets you merge multiple
loans, federal or private, into
a single private loan

Eligible Loans

Federal student loans only

Private and/or federal student

Potential for Lower Payments



Access to Federal Loan



Credit Check Requirement



How to Consolidate Student Loans

The process of student loan consolidation depends on whether you opt for a private lender or the federal path. Review the steps for each option below.

How to Consolidate Federal Student Loans

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  • Gather necessary documents: You will need your federal student aid ID and Social Security number.
  • Begin loan application: When you’re ready, you can apply online via the Student Aid website. This involves filling out the application form and signing your Master Promissory Note.
  • Choose a repayment plan: During the application process, you can choose between different repayment plans.
  • Submit form and complete application: When you’ve decided on a plan, submit your application.
How to Consolidate Private Student Loans

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  • Review your current loan terms: Gather all your current loan rates and terms. This gives you a big-picture view of everything you owe and will be your benchmark when looking for a new offer.
  • Compare lenders and offers: When you have determined what you need to save money or pay off your debt easily, compare lenders and offers. It’s smart to get multiple quotes to find the best one.
  • Compare additional perks: Some lenders offer better perks, such as no origination fee or a low late payment fee. Make sure to include these in your evaluation.
  • Complete application: When you’ve narrowed down your choices and decided on the best option, complete and submit your application.

Conclusion: Should You Consolidate Your Student Loans?

Consolidating your student loans is a great idea if you have a good credit history or only federal loans. If you’re looking for simplified, reduced and more flexible payments, then consolidating your loan may help.

A good credit history can help if you’re looking to consolidate privately. If you’re only looking to consolidate federal student loans, opting for a Direct Consolidation Loan can help you repay your debt with better terms or a longer period if you need it.

Frequently Asked Questions About Student Loan Consolidation

If you have more questions about student loan consolidation, review our frequently asked questions below.

What are alternatives to student loan consolidation?
Will a student loan consolidation hurt your credit?
Are there student loans that can’t be consolidated?
When is it not a good idea to consolidate student loans?
What should you consider before consolidating student loans?
How long does it take for student loan consolidation?
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