A Complete Guide to Student Loan Consolidation

Find out if student loan consolidation is a good option for you.

Student loan debt is at an all-time high. About 44 million Americans owe $1.4 trillion in student loan debt, and 11% of them are more than 90 days delinquent.

Number of Americans with student loan debt.

If you have student loans, getting rid of them ASAP is likely among your top priorities. Consolidating several student loans into a single loan can help you simplify your finances, lower your interest rates, and even reduce your monthly payments.

But is student loan consolidation right for you? We’ve created a comprehensive guide to help you decide.

What is student loan consolidation?

When you consolidate your loans, you combine your current federal or private student loans into a single loan. This can save you money and simplify your payments. So what’s the catch? Sometimes, you might lose some benefits.

First, a primer on some basic jargon you need to understand. Technically, you can only consolidate federal student loans. If you qualify, the government combines your federal loans into a more manageable loan without lowering the overall interest rate. In fact, you could end up paying more interest if consolidation lengthens the overall term of your debt.

When you consolidate private lenders, it is called refinancing. Do it right and you can lower your interest rate, but you may also lose some consumer protections.

Federal student loan consolidation

Federal consolidation is done through the Department of Education, and cannot include private student loans. The goal is to simplify your payment process. If you extend the duration of the loan, you may also secure lower monthly payments.

You are unlikely to save money in a federal consolidation. The Federal Government simply adjusts the terms to make payments easier. The total amount you’ll have to pay in the end will usually be the same.

Once consolidated, your new fixed interest rate will be the weighted average of your previous rates, rounded up by 1/8th of 1%. You’ll also get a new loan term ranging between 10 and 30 years.

You are unlikely to save money in a federal consolidation. The Federal Government simply adjusts the terms to make payments easier. The total amount you’ll have to pay in the end will be the same. However, if you accept a longer loan term, your total interest paid may increase.

Consolidating loans via the Department of Education can qualify you for an income-driven repayment plan. This government program will set a limit on your monthly payments based on a percentage of your income. They will then adjust the length of the repayment term accordingly.

Pros and cons of federal consolidation:

WEIGH THE PROS AND CONS

Compare the pros and cons of consolidating your federal student loans to make a better decision.

Pros
  • Guaranteed fixed interest rate.
  • Can qualify you for income-driven repayment plans.
  • You’ll only need to make one payment per month.
  • The possibility of lower payments.
  • Easier payment scheme allows you to stay on top of your payments.
  • Multiple repayment plans to choose from.
  • Can restart the clock on deferments and forbearance up to three years.
  • You can arrange an automatic debit with your bank, so your consolidated student loan payment is made each month automatically.
  • Making consistent on-time payments can improve your credit score.
Cons
  • Rounded-up interest rates means you’ll pay more interest over time.
  • Can’t include private loans in the consolidation.
  • You may lose some federal loan benefits.
  • Loss of grace period.
  • No do-overs. Once you’ve consolidated your loans, you can’t break them up again.

The federal student loan consolidation process

Before you go online to begin the process, make sure you have all necessary information about each loan you plan to consolidate. Once you’re prepared, visit the U.S. Department of Education to access an application and begin the process.

You can fill out and submit the application online, or print it out and mail a copy.

After this, the consolidation servicer will consolidate your eligible loans. They’ll also be your point of contact for all questions about the process. According to Walker, the process typically takes 60-90 days. 

It’s important to keep making payments on your current loans until the Department of Education informs you that you have a new consolidated loan.

Private student loan consolidation

Typically called student loan refinancing, private loan consolidation is done through a private lender. The lender combines your student loans into one larger loan with in one monthly payment. You can refinance both federal and private student loans through a private lender.

Each lender has multiple variations on refinancing offers: multiple years for repayment, fixed vs. variable, co-signed vs. non-co-signed. It’s important to shop around and do your homework before committing to a particular lender.”

The purpose is to lower your interest rate, lower your monthly payment, or both. As with any private loan, the interest rate will be based on a variety of factors including your credit score, employment history, income, and educational background.

WEIGH THE PROS AND CONS

Compare the pros and cons of refinancing your student loans to make a better decision.

Pros
  • The possibility of lower payments.
  • If you have a co-signer, you can release them from liability.
  • You’ll only need to make one payment every month.
  • Flexible payment terms.
Cons
  • Can cost more in the long run if you extend the payment term too much.
  • Loss of grace period.
  • You’ll miss out on loan forgiveness, cancellation programs, and income-based repayment plans offered by federal loans.

Mix-and-match consolidation

You have a third consolidation option: a mixture of private and federal consolidation. Some borrowers consolidate their federal loan debt and refinance their private loan debt.

This way you won’t be stuck with high-interest loans, and your low-interest loan will retain all of the perks that go with federal student loans.

When might this make sense?

If you have both federal and private loans right now, you can mix consolidation types to get the best of both worlds. Consolidate your federal loans to gain the ability to defer your loan or switch to income-based payments if you suffer a hardship. Then refinance your private loans to secure a better rate for that set of loans.

How to get started

Applying for student loan consolidation usually takes less than 30 minutes. All you’ll need to do is provide a detailed list of the loans you want to consolidate.

If you’re looking to consolidate your federal student loans, head to the U.S. Department of Education website and fill out an application.

If you need to refinance private student loans, you’ll have to do some research to a private lender who makes the best offer for your circumstances. You can start by checking out these lenders, who typically offer low rates and flexible terms:

To get a better sense of your private consolidation options, you can also check out SuperMoney’s student loan review page. Here you can compare rates, read user reviews, and find the right lender for your situation.

WEIGH THE PROS AND CONS

Compare the benefits and disadvantages of federal and private student loan consolidation to make a better decision.

Federal Consolidation
  • Easier to manage payments (one monthly payment)
  • Various repayment plans and forgiveness programs
  • Could get a lower monthly payment
  • Deferment and forbearance
  • Helps avoid default
  • Fixed interest rate
  • Won’t save money.
  • Could have a higher interest rate.
  • Extended repayment period could result in more interest charged over the life of the loan
  • Can only be used with federal loans.
  • Interest rate won't drop (rounds up by 1/8 of 1%)
Private Consolidation
  • Can cost more in the long run if you extend the payment term too much
  • Loss of grace period
  • You’ll miss out on loan forgiveness, cancellation programs, and income-based repayment plans offered by federal loans
  • Can consolidate both private and federal loans
  • Easier to manage payments having only one loan
  • The potential for lower interest rate
  • Cosigner options
  • Lose federal loan perks
  • Additional fees

How to choose the best lender for you?

  • Choose what terms you want
  • Check what rates, fees, and penalties each lender charges
  • Compare terms and read consumer reviews

SuperMoney makes it easy to compare lenders and read consumer reviews for free. Try it now!

Mix and match

There is a third option for consolidation: a mixture of private and federal consolidation. Some borrowers consider doing both: consolidate the federal loan debt and refinance the private loan debt.

When does it make sense?

If you have both federal and private loans right now, you could combine the federal loans through federal consolidation in order to reap the benefits offered by going this route, such as the ability to defer your loan or switch to income-based payments if you suffer a hardship.