Can You Consolidate Private Student Loans Into Federal Loans? Consolidation vs. Refinancing

It seems as though going into debt is part of living the American dream (or should I say nightmare?). This is especially true if you want to pursue a higher education.

In fact, student loan debt is the second highest consumer debt category next to mortgage debt. The U.S., alone, is $1.4 trillion deep in student loan debt, with over 44 million borrowers contributing to that number.

Each borrower carries an average of $37,172 in student debt today, which gives you an idea of the burden of debt on an individual basis. To give an even closer look, that’s $2,858 of student debt accrued every second. It’s no wonder millions of people seek debt relief every year.

If you’re one of those people, you’ve probably considered student loan consolidation to help alleviate that burden.

With an infinite amount of information on the topic of loan consolidation, there’s one burning question that still remains unanswered: can you consolidate private student loans into federal loans?

We’re going to answer that question right now.

Can you consolidate private student loans into federal loans?

The short answer is no, you cannot consolidate private student loans into federal loans. But it isn’t exactly that black and white. For starters, consolidation and refinancing have distinct meanings when it comes to student loans. This distinction is important to understand because, in short, one results in a new loan with lower rates while the other does not. Let’s take a look.

Student loan consolidation vs. refinancing

Student loan consolidation is exactly what it sounds like: combining multiple loans into one new loan. The difference comes down to the type of loan(s) being consolidated.

When talking about student debt relief, consolidation refers specifically to federal loans, while refinancing can refer to federal loans, private loans, or both.

Consolidation is part of refinancing, but refinancing isn’t part of a consolidation. That may sound a bit confusing right now, but it’s going to make perfect sense in a minute– keep reading.

Federal consolidation

You can consolidate your federal student loans using a Direct Consolidation Loan offered by the Department of Education. You cannot use this option for private student loans. It’s exclusive to federal loans only.

There’s no real financial advantage in using a Direct Consolidation Loan (unless you use this consolidation hack). In fact, you could end up with HIGHER interest from consolidating your federal loans this way.

That’s because your new fixed interest rate is determined by the weighted average of the interest rates on your original loans (that are being consolidated), rounded up to the nearest one-eighth of a percent.

It can get tricky because a Direct Consolidation Loan will qualify you for an extended repayment period, which can reduce your monthly payment. But it may not make that much of a difference in the long run because an extended repayment period could result in you paying more in interest when all is said and done.

In addition to that, federal consolidation can also make you eligible for income-driven repayment plans and loan forgiveness. There’s a “but” with this too, though. While these programs can be advantageous, they could also cost you.

Loans forgiven under an income-driven repayment plan are regarded as taxable income. So if you get stuck in this scenario in the future, you could wind up with an even higher payment amount than you originally planned for.

While there are certainly benefits to federal loan consolidation, such as the option for forbearance and deferment, it isn’t always the best route to take if you’re looking to save money on your student loans.

And since saving money is the goal we want to achieve right now, that brings us to the other side of the equation: refinancing.

Featured Student Loans

Lending PartnerAPR Range 
Fixed:
3.35% – 6.74% APR (with AutoPay)
Variable:
2.615% – 6.54% APR (with AutoPay)
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Variable: as low as 2.52%*

Fixed:as low as 3.25%*

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Variable: 2.56% – 6.73%*

Fixed: 3.37% – 6.99%*

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Variable APR (Refinancing): 2.82% – 6.19%*
Fixed APR (Refinancing): 3.35% – 6.39%*
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Variable APR: 2.81% – 10.24%*
Fixed APR: 4.45% – 11.76%*
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Private consolidation

This is where the concept of “consolidation is part of refinancing, but refinancing isn’t part of consolidation” comes into play.

With federal consolidation, your original loans are considered paid off and then closed for good. As explained above, the new interest rate is the weighted average of each loan being consolidated, and saving money is not the main goal of this approach.

Private student loan consolidation works a different way and has a different goal.

First off, you can consolidate ALL of your student loans– federal, private, or both– into one private loan through a private lender. That’s just the first difference between these two types of consolidation.

The main difference with this type of consolidation is that it also achieves the goal of refinancing–to lock in a lower interest rate and monthly payment. Unlike federal consolidation where your original loans are paid off and closed, a private lender will give you a brand new loan with brand new terms.

The key difference between consolidation and refinancing

You’re renegotiating the terms of your existing student loan(s) into a completely new loan. This is the primary difference as to why federal consolidation isn’t referred to as “refinancing” the way private consolidation is.

Refinancing your student loans allows you to create an affordable monthly payment plan to fit your budget. Unlike federal consolidation which offers a nonnegotiable fixed rate, private consolidation (aka refinancing) offers many options. For starters, you have the choice between a fixed or variable interest rate.

And you can shop around to find the best rates and terms for your particular situation.

One downfall is that it isn’t easy to qualify. Your rate will be based on factors such as your credit score, debt-to-income ratio, employment status, and educational background. Most lenders reserve the best rates for borrowers with excellent credit.

However, there are cosigner options available, plus cosigner release options as well– this allows the cosigner to be removed from the loan after a set amount of on-time monthly payments have been made.

It’s also important to note that you’ll lose federal loan perks if you consolidate your federal loans into a private loan. For example, you won’t have access to loan forgiveness programs offered by the Department of Education. But there are other options you can consider.

Quick recap

Federal consolidation is just that… It’s consolidation of your federal loans, period. But with private loans, consolidation is just the first step. In other words, it’s part of the refinancing process. That’s why consolidation is part of refinancing, but refinancing isn’t part of a consolidation.

Here’s a quick look at the pros and cons of each approach.

Pros and cons of federal consolidation

Pros

  • One monthly payment
  • Federal perks (repayment plans, loan forgiveness, deferment, and forbearance)
  • Possibility of lower monthly payment
  • Fixed interest rate- payments won’t change
Cons

  • Interest rate could increase
  • May end up paying more in interest over the life of the loan- won’t save money
  • Can only be used with federal loans
  • Debt forgiveness is taxable

Pros and cons of private consolidation

Pros

  • One monthly payment
  • Can consolidate private and federal loans
  • Options to create affordable payment plan
  • Lower interest rate and monthly payment
  • Cosigner options
Cons

  • Lose federal loan benefits
  • Need good credit to qualify (among other requirements)
  • Some lenders charge an origination fee
  • Variable interest rate could increase future payments

Student loan refinancing options

So, going back to the question of the hour: can you consolidate private student loans into federal loans? No, you can’t, and even if you could, it wouldn’t really make much sense.

The main reason people ask this question is they’re looking for ways to get a better rate and lessen the financial burden of their student loans. Even if it was possible– which it isn’t– consolidating your private loans into a federal loan won’t give you a better rate.

But consolidating your federal loans (and private loans) into a private loan very well could. And, as mentioned above, there are a lot of options.

To get started, use SuperMoney’s loan offer engine to find out if you pre-qualify. You’ll receive personalized loan offers from top student loan lenders without hurting your credit score.

Then, head over to our student loans review page to compare the rates and terms of leading student loan lenders. Becoming debt-free isn’t a quick process, but you’re one step closer to getting there.

Featured Student Loans

Lending PartnerAPR Range 
Fixed:
3.35% – 6.74% APR (with AutoPay)
Variable:
2.615% – 6.54% APR (with AutoPay)
Apply
Variable: as low as 2.52%*

Fixed:as low as 3.25%*

Apply
Variable: 2.56% – 6.73%*

Fixed: 3.37% – 6.99%*

Apply
Variable APR (Refinancing): 2.82% – 6.19%*
Fixed APR (Refinancing): 3.35% – 6.39%*
Apply
Variable APR: 2.81% – 10.24%*
Fixed APR: 4.45% – 11.76%*
Apply