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Consolidation Options for Federal and Private Student Loans

Last updated 03/26/2024 by

Jessica Walrack
Are you drowning in student loan debt and wondering what the best strategy is for managing it? Today, 40 Million Americans have student loan debt. You’re not alone.
Americans have student loan debt (Source)
Many are looking to student loan consolidation for help. Learn more about federal and private debt consolidation and which option is best for you.

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Student loan consolidation overview

When looking to consolidate your student loan, it’s important to consider what kind of loans you have. This will play a factor in what consolidation option is best for you. The two types are private and federal.
Private student loans are provided by institutions such as banks and credit unions, rather than the government. They are given based on a borrower’s credit history, similar to a personal loan or a line of credit. They may fund the full amount of a student’s education or may be capped each year. Payment is often deferred until after graduation and interest rates are usually tied to the prime rate and LIBOR indexes. Repayment terms can last from 15 to 25 years.
Federal loans are secured by the government. Although they also lend money with interest attached, the rate is often far lower than those associated with a private loan. These loans can be provided by the federal government, your state, the institution at which you are studying or nonprofit organizations that aim to help students. You typically apply for this funding using the Free Application for Federal Student Aid (FAFSA) form and loan amounts are based on financial need.
Identify the type of loan (or loans) you have and let’s look at the solutions.

Private student loan refinancing and consolidation

Private student refinancing (also known as consolidation) is when you combine all of your student debt (whether federal, private or both) into one loan provided by a private lender.

How does it work?

Once you have researched private lenders and found the one you want to work with, you apply, usually online. The lender will look at your credit history and credit score to determine whether you are eligible for refinancing. Typically, you need a credit score of at least 650. Once approved, all of your loans will be paid off and the balances will be combined into your new loan. The new lender will provide you with terms for the length of repayment and the interest you’ll pay. Private lenders offer both fixed or variable rates on these consolidation loans. While variable rates can offer lower payments, they also are more risky, as they can increase when the indexes go up. A fixed rate can be desirable because you will always have the same payment, but it may carry a bit higher rate than is available when the variable rate is low. Other fees may apply.

What are the pros and cons?

Compare the pros and cons to make a better decision.
  • Make one payment per month.
  • Potentially lower your interest rates.
  • Create a payment plan that you can afford.
  • Co-signer options are often available.
  • A credit score of more than 650 is needed to qualify.
  • Typically, no income-based repayment options are available.
  • You may lose protections specific to federal loans.
  • If you opt for a variable interest rate, your payment may increase to more than you can afford at some point in the loan.

How to consolidate private student loans

If you choose this option, start by shopping for a lender that provides low-interest rates and makes approvals for borrowers in your credit score range. Also, be mindful of repayment terms and fees.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Federal student loan consolidation

Federal student loan consolidation is allowed through a Direct Consolidation Loan offered by the Department of Education and it combines all of your federal loans into one loan with one payment. There is not a financial advantage in doing so, however, it does make payments more convenient and can help you qualify for other federal programs.

How does it work?

When you opt to consolidate your federal loans, any original federal loans are paid off and the balances are combined into a new loan. Once completed, the old loans are closed, so there is no way to go back. As a result, you will have one monthly payment. Consolidated loans may qualify for programs that were not available when you took out the previous loans, such as alternative payment plans. On the other hand, you may lose features from your original loans that were of benefit to you. You can apply for consolidation after you graduate, when you drop to under half-time enrollment or once you leave school.
The types of federal loans that can be consolidated include direct subsidized loans, direct unsubsidized loans, federal Stafford loans, direct PLUS loans, PLUS loans from the federal Family Education Loan Program, SLS loans, Perkins loans, federal nursing loans, and many more. You can see a full list on the application. Note that private education loans do not qualify.
You can expect fixed interest rates on Direct Consolidation Loans. The rate is a weighted average of all the loans that are being consolidated and is rounded up to an eighth of one percent.
Repayment of your Direct Consolidation Loan is allowed to begin within two months of the loan disbursement, or sooner if you wish. Repayment terms are 10 to 30 years. The final term is dependent on the loan amount, other educational loan debt and the final repayment plan you choose.
There are a number of repayment plans available to you, including a standard repayment plan, graduated repayment plan and extended repayment plans. Use this repayment estimator to find the best one for your needs.

What are the pros and cons?

Compare the pros and cons to make a better decision.
  • You get access to payment plan options like reducing minimum monthly payments to a percentage of your income
  • Public service loan forgiveness if available after 10 years
  • Helps to make your monthly repayments simpler in the fact that there is only one payment to make.
  • Can’t reduce interest rate, only offers a weighted average of all interest rates.
  • Cannot include private loans.
  • Extended loan terms may increase amount repaid due to increased interest over time.
  • Debt forgiveness is taxable.

How to apply for a federal student loan consolidation

You can apply at the Student Loans website. You can apply online or by using regular forms that you submit by mail.
For the electronic application, you will follow five steps.
  • Choose loan and servicer
  • Repayment plan selection
  • Terms and conditions
  • Borrower and reference information
  • Review and sign
Once completed, your application is submitted.
**Important note: DO NOT stop making payments on your loans at any point. You will be informed once these loans have been paid off. If you have any questions before applying for this type of loan, contact the Loan Consolidation Information Call Center at 1-800-557-7392.

Which is better for you?

Now that you have seen the two types of student loan consolidation options, which is best for you? Do you have only private education loans? If so, you are going to want to find a private lender. If you have all federal loans than a consolidation through the Department of Education may be a good move. For those with a combination of loans, you may want to use both consolidation methods or use a private lender to get one easy payment. It’s not a decision to take lightly as it will affect you for years to come. So weigh the pros and cons carefully to find the best solution.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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If you’d like to see what terms are available for private consolidation, head over to the student loans page to review and compare a wide range of lenders.

Jessica Walrack

Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar,, Commonbond, Bankrate, NextAdvisor, Guardian, and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.

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