How to Consolidate Student Loans
Updated March 20, 2024 at 8:11 pm
Consolidating student loans combines them into one payment with one interest rate. And depending on the situation, you might be able to extend the term of your loan, allowing you to spread payments over a longer period of time. This can give you breathing room in your budget.
Plus federal student loan consolidation might come with additional benefits, especially if you complete your consolidation to take advantage of certain programs. Let’s take a look at how to consolidate student loans and explore the options so you can decide if it’s the right move for you.
Our Methodology Newsweek Vault’s loan experts evaluated multiple data points to help our readers make sense of their borrowing options across student loans and personal loans. To narrow down the best available offers, we weigh the product pros and cons across five core categories, including:
- Application process
- Eligibility requirements
- Interest rates
- Loan amounts (minimum and maximum)
- Repayment flexibility”
Student Loan Consolidation vs. Student Loan Refinancing
Student loan debt consolidation uses slightly different terminology than what you might see with other debt consolidation loans. This is to help borrowers differentiate between what happens when you consolidate federal vs. private student loans.
- Consolidation. This is the most common term used for federal student loan debt consolidation. All of the loans you choose are brought under one roof with a single payment and one interest rate. You typically get a new loan term while retaining access to federal programs like student loan forgiveness, income-driven repayment and automatic deferment in certain situations.
- Refinancing. When talking about student loans, this usually refers to private debt. Refinancing a student loan involves getting approved for a bigger loan. You then use the proceeds from the bigger loan to pay off all your smaller debts. Now you have a new loan, with a new interest rate and monthly payment. But with private student loan refinancing, you don’t have access to federal student loan programs.
It’s possible to include federal student loans in a private refinance, but you can’t consolidate private student loans into a federal Direct loan program. And if you refinance federal loans using a private lender, you no longer have access to federal student loan forgiveness and income-driven programs.
| Federal student loan consolidation | Private student loan refinancing | |
| Purpose | Combines multiple federal student loans into a single Direct Consolidation loan | Replaces multiple private student loans and/or federal loans with one larger loan |
| Number of monthly payments | 1 | 1 |
| Types of loans included | Federal student loans only | Private and/or federal student loans |
| Credit check | No | Yes |
| Potentially lower interest rates | No | Yes |
| Potential lower monthly payment | Yes | Yes |
| Potential savings during the loan | No, there aren’t interest savings even with a lower monthly payment | Yes, in many cases you can get a lower payment and save on interest with a lower rate |
| Access to federal benefits like deferment, income-driven repayment and forgiveness | Yes | No |
How to Consolidate Federal Student Loans
When you consolidate your federal student loans, you use what’s called a Direct Consolidation loan. With this loan, you can combine your loans into one payment with new terms.
Start by going to StudentAid.gov and signing into your account. You’ll be able to access the Direct loan consolidation form and begin filling it out. In many cases, you can complete the steps online. Here are some of the things you’ll need to do as you consolidate your federal student loans.
Choose Which Loans to Consolidate
When you look at your record, you’ll see a list of student loans spanning your college career. You might even have older loans from the old Federal Family Education Loan (FFEL) program and not just the Direct program. For a limited time, it’s possible to consolidate FFEL loans into the Direct program to receive an adjustment that could move up the timetable to forgiveness for some borrowers.
Regardless, you can decide which loans you want to include in your consolidation. You can even arrange to do more than one consolidation if you have Parent PLUS loans and want to take advantage of the double consolidation loophole.
Review your strategy and decide which loans should be consolidated together. Additionally, you’ll need to decide whether to continue online or use the paper application. (For most borrowers, the online method is likely best; for Parent PLUS loan borrowers, it might make more sense to complete the process using paper.)
Choose a Repayment Plan
Next, you can choose a repayment plan. The Department of Education can help you figure out what is likely to work best for you. With a Direct Consolidation loan, you can choose up to 30 years for repayment.
If you’re concerned about the impact on your budget, you can choose an income-driven repayment program. Income-driven repayment, including the new SAVE plan, has requirements, so you’ll need to fill out a request form. The request form is readily available and you’ll be taken through the steps for filling it out.
Once you’ve completed all the paperwork and accepted the terms, submit your consolidation form. Keep making your payments until you receive an update from your student loan servicer that the process is complete on their side and your new payments have been provided.
What About Defaulted Student Loans?
Consolidating student loans in default requires extra steps. Student debt consolidation can help you rehabilitate your loans and get them back on track. Your record on StudentAid.gov can show you which loans are in default. Before you can include them in a consolidation, you need to make three on-time and in-full payments on the defaulted loans. Once you’ve done that, you can include them in your federal student loan consolidation.
How to Consolidate Private Student Loans
The process of consolidating private student loans is usually referred to as student loan refinancing. Getting your private student loans in one place, with a (hopefully) lower interest rate and different term length can potentially lead to more manageable payments. The steps are pretty straightforward:
- Compare student loan refinance lenders. Shop around to see what programs are available and which lenders refinance private student loans. Consider factors like whether they refinance loans from any school, if they offer hardship programs, whether you need a co-signer and what interest rates they offer.
- Get preapproval from three to five lenders. Next, look for lenders that will give you an interest rate quote without doing a hard credit inquiry. You’ll have to submit basic information about your finances and credit.
- Choose your lender and loan. After comparing lenders and interest rates, decide which is best suited to your needs and fill out an application. Once you’re approved, you’ll be able to proceed with paying off the smaller student loans with your new refinanced loan.
Note that, unlike federal student loan consolidation, your credit will be taken into consideration with private student loan financing. You can be denied a loan, or you might be required to get a cosigner.
Pros and Cons of Student Loan Consolidation
When figuring out how to consolidate student loans, consider the advantages and disadvantages.
Pros and Cons of Federal Student Loan Consolidation
Pros
- Simplify monthly debts by combining multiple payments into one
- Potentially reduce your monthly payment by increasing the term length
- Improve eligibility for programs like income-driven repayment
Cons
- Potentially in debt for a longer time period
- Could pay more in interest over time
- May not be eligible for income-driven repayment and loan forgiveness programs
Pros and Cons of Student Loan Refinancing
Pros
- Reduce the number of student loan payments
- Potentially reduce your interest rate, saving money over time
- Potentially help your monthly budget with lower payments
Cons
- Must be approved, which means you generally need good credit or a co-signer
- May lengthen the amount of time you’re in debt
- May lose access to federal forgiveness and income-driven repayment programs
Frequently Asked Questions
How Long Does It Take to Consolidate Student Loans?
Consolidating student loans can take anywhere from a few days to a few weeks. For federal student loans, it depends on how many servicers and loans are involved and whether you submit your application online or on paper. In general, it takes about 60 days to process a federal Direct Consolidation Loan. For private student loan refinancing, the process is usually faster as long as you’re approved.
Should I Choose Federal Student Loan Consolidation or Private Student Loan Refinancing?
Whether you choose federal student loan consolidation or private refinancing depends on your situation and goals. If you have federal student loans and want to make one payment instead of multiple, and you want access to benefits like income-driven repayment, federal consolidation might make sense.
If you have good credit and don’t qualify for income-driven repayment and student loan forgiveness, you might decide that student loan refinancing is worth it to get a lower interest rate and get out of debt faster.
Will Loan Consolidation Affect Credit Toward Public Service Loan Forgiveness?
Depending on the situation, student loan consolidation can reset the clock on Public Service Loan Forgiveness (PSLF). But if you submit your consolidation by April 30, 2024, you could potentially receive an adjustment that won’t penalize you. If you consolidate your federal loans using private lender student loan refinancing, you’ll no longer be eligible for PSLF.
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