How Federal Consolidation Differs From Private Loan Consolidation

Consolidating is a way to combine all your loans into one. There are some differences between consolidation types

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Consolidating your loans is one of the best alternatives if you are looking for a way to simplify your monthly student loan payments and make them more manageable. When you consolidate your loans, you only have to keep track of one payment to be made on one date every month.

You can consolidate federal student loans as well as private student loans. In both cases, all your individual loans are combined into one single new loan but there are a few differences between the two.

Federal Student Loan Consolidation

Federal consolidating is straightforward—you combine all your individual federal loans into one single loan. The new loan is called a Direct Federal Consolidation Loan. All federal student loans qualify for it.

Just as your original loans, some Direct Consolidation Loans may also qualify for income-based repayment plans as well as forgiveness programs. The interest rate on the new loan is the average of the individual rates of your original rates.

There are no fees associated with federal consolidating.

Private Student Loan Consolidation

With private loan consolidation, there is no one rule governing the eligibility or requirements. Every lender has their own stipulations regarding loan refinance and consolidation. Some lenders may require you to borrow a minimum amount to qualify, while others may assess your creditworthiness before approving of your application.

One of the potential benefits of private loan consolidation is that if you have a good credit history and are earning a regular income, you could qualify for a lower rate of interest with your consolidated loan.

Some private lenders charge origination fees for consolidating.

If you’re considering refi or consolidating, check out College Raptor’s free guide of top lenders!

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