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Federal loans vs. private loans: Understanding student loan issuer types
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The Student Aid Index (SAI) and FAFSA: The college cost homestretch
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College readiness: Financial factors to consider as your child navigates high school

Your guide to student loan consolidation

Simplify student debt payments.
Written byMiranda Marquit
Miranda Marquit
Miranda is an award-winning freelancer who has covered various financial markets and topics since 2006. In addition to writing about personal finance, investing, college planning, student loans, insurance, and other money-related topics, Miranda is an avid podcaster and co-hosts the Money Talks News podcast.
Fact-checked byDavid Schepp
David Schepp
David Schepp is a veteran financial journalist with more than two decades of experience in financial news editing and reporting for print, digital, and multimedia publications.
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Table of Contents
Read More
A composite photo of the Statue of Liberty and a bank's exterior.
Federal loans vs. private loans: Understanding student loan issuer types
Cropped Hands Of People Throwing Mortarboards Against Clear Sky
The Student Aid Index (SAI) and FAFSA: The college cost homestretch
Cute middle school student thinks about her future. She is smiling with her hand on her chin.
College readiness: Financial factors to consider as your child navigates high school
A photo illustration of an aircraft marshaller guiding blank pages into an orderly row.
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Get smart about managing your student debt.
© Vitaliy/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc

College loan debt can be crushing, and many individuals struggle to balance monthly payments with other essential expenses such as rent and utilities. For those who have taken out multiple loans to cover tuition and other higher education costs, managing separate payments for each loan can add to the financial strain.

Student loan consolidation offers a potential solution. By combining multiple eligible federal education loans into one, you can streamline repayment, reduce your monthly costs, and gain access to income-driven repayment (IDR) plans or loan forgiveness options.

Key Points

  • Student loan consolidation combines multiple federal education loans into one streamlined payment.
  • Combining student loans can result in a longer repayment term and lower monthly payments.
  • Consolidation differs from student loan refinancing, which replaces federal loans with a private loan and eliminates access to federal programs.

How federal student loan consolidation works

Federal student loan consolidation allows you to combine certain school loans into one payment through the Direct Consolidation Loan program. Eligible loans include older loans from the Federal Family Education Loan (FFEL) program, parent PLUS loans, and newer Direct subsidized, unsubsidized, and graduate loans.

Consolidation allows you to extend your repayment term beyond the standard 10 years.  It also gives you access to IDR plans, which calculate payments based on your discretionary income—the amount left after paying your monthly bills—and offer 20- or 25-year terms. Your new interest rate is a weighted average of your existing rates, rounded up to the nearest one-eighth of a percent (0.125%).

Pros and cons of federal student loan consolidation

Before deciding to use federal student loan consolidation, consider the consequences. Although you might benefit from lower monthly payments, consolidating certain loans can affect your ability to claim forgiveness benefits. 

Advantages of student loan consolidation:

  • Streamline payments. You end up with a single bill and one payment each month, making your budget easier to manage.
  • Lower monthly payment. After consolidating, you can spread your payments out over a longer term, reducing your monthly payment and freeing up additional discretionary income in your budget.
  • Income-driven repayment (IDR). Consolidation offers access to IDR plans that consider your discretionary income and set your payment accordingly.
  • Potential student loan forgiveness. If you qualify for an IDR plan, your remaining balance is forgiven at the end of the term (either 20 or 25 years). Also, consolidation can be part of your Public Service Loan Forgiveness (PSLF) plan, which forgives remaining balances after 10 years of eligible payments while you’re working for a qualifying employer, such as a nonprofit or government agency.

Disadvantages of student loan consolidation:

  • Some benefits can be affected. Combining loans from different programs can affect your ability to take advantage of benefits specific to those programs. For example, Perkins loans offer employment-related cancellation benefits that are unavailable if your loans are consolidated. If you’re eligible for these benefits, consider excluding Perkins loans from consolidation. 
  • Longer repayment term. Following your consolidation loan repayment schedule could mean taking longer to pay off your debt. You can reduce the impact by making extra payments to get out of debt faster.
  • Higher overall interest cost. A longer-term loan usually results in more interest paid. Student loan consolidation can lead to paying more interest compared with a standard repayment plan or refinance.

How Parent PLUS loans factor into student loan consolidation

Parent PLUS loans are taken out on behalf of a dependent student. They’re a way for parents to help their children pay for school by taking on the debt. Parent PLUS loans are eligible for consolidation, but combining them with other loans can limit the repayment options.

Parent PLUS loans are eligible only for the income-contingent repayment (ICR) plan. Consolidating them with other federal student debt causes the entire consolidation loan to become subject to ICR eligibility rules, which could prevent access to other IDR plans.

Choose which loans to consolidate

You don’t have to consolidate all your loans; you can choose which ones to include in a Direct Consolidation Loan. It’s possible to consolidate Parent PLUS loans together and set up a separate consolidation for student education loans. That means two payments instead of one, but each loan can be on a different income-driven repayment (IDR) plan if you qualify.

Parent PLUS loans are eligible for PSLF after you consolidate them and use the ICR plan, but they can affect the repayment schedule and how many qualifying payments count toward the debt’s discharge. Before you consolidate Parent PLUS loans with other loans, consider the consequences.

Student loan consolidation vs. refinancing

Federal student loan consolidation and student loan refinancing aren’t the same. Refinancing typically means using a private lender to combine your student loans into one payment. Unlike consolidation, refinancing allows you to combine federal and private loans into a single private loan.

Once you refinance, all your student debt becomes private. The private loan pays off your federal loans, and all payments go to your new lender. As a result, you’re no longer eligible for any federal programs, including IDR, loan forgiveness, or guaranteed deferment.

If you have a high credit score, refinancing can result in a lower interest rate, saving you money, and you might be able to pay off your debt faster. Depending on your financial goals and whether you expect to use federal forgiveness or repayment programs, it might make sense to refinance your private loans together while consolidating your federal loans with a Direct Consolidation Loan. (You can’t include private loans in a federal loan consolidation.)

How to consolidate student loans

Consolidating federal student loans is simple. Submit the Direct Consolidation Loan application online using these steps:

  • Sign into your Federal Student Aid account at studentaid.gov.
  • Locate the Direct Consolidation Loan application under the loan repayment options.
  • Fill out the application, including your financial and personal information, and select which loans to consolidate and a repayment plan.
  • Review and sign your agreement, providing references as required, then submit the application.

You can also send in your completed Direct Consolidation Loan application by mail. Your loan servicer handles the rest, and your first payment is due 60 days after the consolidation loan is disbursed. 

The bottom line

Student loan consolidation can make sense if you want to simplify your payments and possibly reduce the strain on your monthly budget. Before consolidating, review the types of loans you have and consider the potential consequences, such as becoming ineligible for certain benefits or repayment plans.

If consolidation isn’t the right fit, alternatives such as refinancing or switching to an income-driven repayment (IDR) plan might help you better manage your debt.

References