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Student Loan Consolidation: Critical to Know This!

Student loan consolidation allows you to combine multiple federal student loans into one new single loan. This can potentially lower your monthly payment and simplify repayment.

Consolidating federal student loans is different than refinancing, which combines loans into a private loan. With federal consolidation, you retain access to federal repayment plans and borrower protections.

This guide covers everything you need to know about consolidating student loans including how it works, pros and cons, eligibility, and how to apply.

What is Student Loan Consolidation?

Student loan consolidation is the process of combining multiple federal education loans into one new consolidated loan with a fixed interest rate and term of up to 20 years.

Some key things to know about consolidating federal student loans:

  • Offered by the Department of Education’s Direct Loan program
  • Combines multiple loans into one new Direct Consolidation Loan
  • Fixed interest rate based on a weighted average of your loan rates
  • Repayment term of 10-20 years
  • Retain eligibility for federal student loan benefits and protections
  • One monthly bill simplifies repayment
  • No fees to consolidate

The goal is to provide a single loan with one monthly payment and potentially improved terms to make repayment more manageable.

You can consolidate most types of federal student loans including:

  • Direct Subsidized and Unsubsidized Loans
  • Parent and Grad PLUS Loans
  • Subsidized/Unsubsidized FFEL Loans
  • Perkins Loans
  • Nursing Student Loans

Private student loans are not eligible. Some borrowers choose to consolidate to extend their repayment terms in order to lower monthly payments. However, this increases the total interest paid over the life of the loan.

The Pros and Cons of Student Loan Consolidation

Before deciding if consolidation is right for you, weigh the key pros and cons:

Lower monthly payment – Extending the repayment term can significantly lower your monthly payment. This helps free up cash flow each month Higher total costs – Extending the repayment term results in more interest paid over the loan’s life
One bill – Consolidating combines all loans into a single new loan with just one monthly bill, which is easier to manage repayment Lose repayment incentives – Any borrower benefits from prompt repayment of your existing loans will be lost when consolidating
Interest rate average – Your consolidation loan rate is a weighted average of your existing federal loan rates rounded up to the nearest 1/8%. This can lower the rate No change to variable rates – Consolidation does not alter variable interest rates to fixed rates. Variable rates remain variable
Keep federal perks – Consolidation loans retain all federal student loan benefits and protections, which private consolidation/refinancing does not Reset grace period – If loans are in their grace period, this will be reset when consolidating. Payments begin 60 days after consolidation
Add or remove borrower(s) – Spouses can be added as co-borrowers to consolidate joint loans. Parents/cosigners can be removed in certain cases No direct private loan consolidation – Private student loans cannot be directly consolidated into a federal Direct Consolidation Loan
Add or remove borrower(s) – Spouses can be added as co-borrowers to consolidate joint loans. Parents/cosigners can be removed in certain cases Could extend repayment – Going with the maximum 30-year term means you may pay on loans well into your 50s or 60s
No fees – There are no loan fees or prepayment penalties when consolidating federal student loans Could extend repayment – Going with the maximum 30-year term means you may pay on loans well into your 50s or 60s
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Carefully consider how these pros and cons apply to your situation. Consolidation offers payment flexibility but with potential trade-offs.

Federal Student Loan Consolidation Eligibility

To qualify for federal Direct Loan consolidation, you must meet a few basic eligibility requirements:

  • Have at least one federal student loan eligible for consolidation
  • Be in repayment, grace period, deferment, or forbearance
  • Meet credit requirements (no recent defaulted federal loans)
  • Agree to repay under an income-driven or standard 10-30-year plan

As long as you have a federal education loan and are not in default, you will likely be approved. Private loans can also be consolidated into a federal Direct Loan but must first be refinanced.

Parent PLUS loans can be consolidated on their own or with the dependent student’s federal loans. Spouses can consolidate their loans together.

How Consolidation Affects Student Loan Interest Rates

One big benefit of consolidating can be getting a lower student loan interest rate, but this varies case-by-case. Here is how it works:

Your new consolidation loan interest rate will be a weighted average of the rates on all your existing federal loans rounded up to the nearest 1/8th of a percent.

For example, if you have:

  • $15k Stafford Loan at 5%
  • $10k Perkins Loan at 3%
  • $5k Grad PLUS Loan at 7%

The weighted average is:

Loan Amount Rate Weighted Rate
Stafford $15k 5% 0.75%
Perkins $10k 3% 0.3%
Grad PLUS $5k 7% 0.35%
Total $30k n/a 1.4%

1.4% rounded to the nearest 1/8% is 1.5%. So your new consolidation loan rate would be 4.5%.

This demonstrates how consolidation can lower your overall interest rate if you have older loans with higher rates. But there are no guarantees your rate will go down unless you run the numbers. The interest rates on newer federal loans are fairly consistent.

Consolidating variable rate loans like Grad PLUS does not convert the rate to fixed. Any variable rate loans will remain variable when consolidated.

Federal Direct Consolidation Loan Application Process

Applying for a federal Direct Consolidation Loan is free and can be done online in just a few steps:

  1. Review your federal student loan balances and interest rates.
  2. Decide if you want to consolidate jointly with your spouse (optional).
  3. Complete the online Direct Loan consolidation application and select your repayment plan.
  4. Provide information on the federal loans you want to consolidate.
  5. Review and sign the Direct Consolidation Loan credit agreement (MPN).
  6. Submit the completed consolidation application for processing.
  7. Continue making payments on existing loans until the consolidation is processed.

The Department of Education will pay off and consolidate your existing eligible federal student loans into one new Direct Consolidation Loan within 1-2 months after you submit your application.

Once consolidation is complete, you will deal with just one loan servicer and make just one monthly payment going forward. Make sure you sign up for electronic account notifications to stay on top of your new consolidated federal student loan.

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Alternatives to Federal Student Loan Consolidation

Besides federal consolidation, here are a couple of alternatives to consider:

  • Private refinancing – Student loan refinancing combines multiple loans into a new private loan. This allows consolidation of federal and private loans but strips federal benefits. Rates are based on credit.
  • Change repayment plan – Adjusting repayment plans for existing federal loans may provide lower monthly payments. Options include Standard, Graduated, Extended, and Income-Driven plans.
  • Deferment or forbearance – Getting approved for deferment or forbearance provides temporary relief from making payments but interest continues accruing in most cases.
  • Request lower payment – Ask your student loan servicer if they offer any hardship programs or interest rate reductions to lower monthly payments.

For most borrowers, federal consolidation should be explored first before considering private refinancing, which carries more risks and fewer benefits.

Is Student Loan Consolidation Right for You?

The bottom line is federal student loan consolidation can make repayment more affordable and manageable but also costs more over the long run in total interest.

Ask yourself these key questions to decide if consolidation is right for your situation:

  • Will consolidating lower my monthly payment enough to provide meaningful savings?
  • Am I comfortable extending my repayment term and total interest costs?
  • Do I value keeping federal borrower benefits and protections?
  • Could I get a lower rate and payment through private refinancing?

Run the numbers based on your loans and projected monthly payment savings to see if the benefits outweigh the additional total interest paid.

Borrowers struggling with high monthly bills are most likely to benefit from consolidation. But this is not necessarily the right thing to do for everyone. Consider your own circumstances, financial goals, and loan details to determine if consolidating federal student loans makes sense for you.

If you want to lower payments but retain federal benefits, consolidation could be a great option. Weigh the pros and cons and speak to a financial advisor if needed to help evaluate if consolidating is the best path forward.


Consolidating multiple federal student loans into one can certainly simplify repayment management. However, the decision involves weighing short-term payment relief against increased total interest paid over the long run.

Given the high financial stakes, it is prudent to seek knowledgeable guidance before moving forward.

Consult with a financial advisor to evaluate your entire financial situation, budget, and goals when determining if consolidation is right for you. They can provide personalized insight into repayment strategies.

Additionally, discuss the process with a legal professional to fully grasp the loan eligibility requirements, application paperwork, available income-driven repayment plans, and any loss of benefits.

With well-informed counsel regarding the consolidation pros, cons, fine print, and alternatives, you can make the best choice for your needs.

Don’t go down this complex path blindly. Seek out financial and legal experts for transparent advice so you can confidently decide if federal student loan consolidation is the wisest course of action for your personal circumstances.

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