What Does it Mean to Consolidate Your Student Loan?


  • Consolidating student loans involves combining multiple federal student loans into one loan with one monthly payment amount and one due date.
  • Consolidation is applicable only to federal student loans. The only way to combine private student loans is by refinancing.
  • Student loan consolidation offers several benefits but there are also a few downsides that you should be aware of.

Consolidating your student loans involves combining multiple federal loans into one single consolidated loan. This is a provision offered by the federal government and applies only to federal student loans. If you have multiple federal student loans with different due dates and payment amounts, consolidation can make the loans more manageable.

Student loan consolidation could be a great solution to anyone looking for an easier way to stay on top of their monthly loan payments.

How Student Loan Consolidation Works

As mentioned earlier, consolidating your student loans means combining two or more federal student loans into a single loan. The new consolidated loan will have one monthly payment amount, one interest rate, and one due date instead of several payments with different rates and different due dates. Most students choose to consolidate their loans for the sole purpose of simplifying their loan payments.

The interest rate on the consolidated loan is calculated as the weighted average of the interest rates of the individual loans that are consolidated. That means the interest you’ll pay every month and over the loan term will remain the same. You don’t get any benefits in terms of lower interest rates when you consolidate. However, consolidation does offer other benefits such as the potential to lower your monthly payments if you’re struggling financially.

Which Loans Are Eligible For Consolidation?

Most federal student loans are eligible for consolidation. This includes Direct Subsidized and Nonsubsidized Loans, Direct PLUS loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, Nonsubsidized and Unsubsidized Federal Stafford (FFEL) Loans, Auxiliary Loans to Assist Students, and Parent Loans for Undergraduate Students.

You may have several different types of federal student loans taken at different times through your years in college. You don’t have to include all these loans when you consolidate. If any of your loans have benefits that you could lose on consolidating, you can choose to exclude these and keep the benefits.

You cannot consolidate your student loans midway through college. You are eligible for consolidation only after you graduate, drop below half-time enrollment or leave school.

Understanding the pros and cons of consolidating your student loans is key to making the right decision.

Pros Of Consolidating Student Loans

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1. Keep track of a single loan with one payment per month

Consider this pre-consolidation scenario – you have multiple federal student loans with different payment amounts, due dates, and loan servicers. Keeping track of all these details can be overwhelming. And, if you miss even one payment date, you will incur late payment fees and possible damage to your credit score.

Now consider this post-consolidation scenario – you only have one payment amount, one due date, and one loan servicer to deal with every month. This makes it easy to keep track of payments resulting in consistent on-time payments, which will help strengthen your credit score and also minimize late-fee payments.

2. Potentially lower your monthly payments  

All federal student loans come with a standard repayment plan of 20 years. This is the default. Whatever your loan amount, the interest is calculated for 20 years and the repayments are broken up into 240 (20 years x 12 months) equal installments. If you’re struggling financially and cannot afford to make the payments, consolidation may be a good solution for you.

When you consolidate your federal student loans, you will be able to choose one of several income-driven repayment (IDR) plans. These plans can extend your loan repayment term by up to 30 years, which will automatically lower your monthly payments.

3. Older loans will become eligible for all repayment plans

Some of the older federal student loans such as Perkins Loans and FFEL loans do not have access to certain IDR plans or the Public Service Loan Forgiveness (PSLF) program. However, when you combine these loans, the newly consolidated loan will be eligible for both, income-driven repayment plans as well as PSLF.

4. Retain all federal benefits

There are two ways to lower your monthly payments – consolidating or refinancing your loans. Both involve combining multiple loans but there’s a big difference between the two.

Consolidation is a provision offered by the federal government. On consolidating your federal student loans, the new loan is still a federal loan and as such it retains all federal benefits and protections. This includes access to IDR plans, deferment and forbearance options, forgiveness, and other hardship relief options.

Refinancing also involves combining multiple loans but it is very different from consolidation. The federal government does not offer refinancing. This option is only offered by private lenders. If you refinance your federal student loans with a private lender, they become private loans. As private loans they lose all benefits and protections associated with federal loans. This process is irreversible.

Cons Of Consolidating Student Loans

While consolidating undoubtedly offers significant benefits, it has a few drawbacks that you should consider before choosing this option.

1. Longer repayment period

Choosing to lower your monthly payments on your new consolidated loan may help you tide over your current financial constraints. However, the lower monthly payments will increase the repayment period. This means it can take longer to pay off your student loans and be completely debt-free.

2. Pay more interest over time

Consolidating to lower your monthly payments means more interest accrues over the longer loan term which means consolidation could cost you more in interest over time. This is only if you choose to lower your monthly payments if you consolidate. Ideally, you could consolidate your student loans while paying off as much as your budget allows. This will allow you to get the benefits of consolidation and lower interest accrual, while also paying off your debt sooner.

3. Interest is added to your balance

When you consolidate your federal loans, any unpaid interest on these loans will be added to your principal balance. After the loan consolidation process is complete, interest will start to accrue on this higher principal balance. If you have a lot of unpaid interest, it could end up costing you a lot in accrued interest.

4. Lose progress toward federal forgiveness programs

You could lose any progress you’ve made on federal programs such as the Public Service Loan Forgiveness program. Before initiating the process, talk to your loan servicer. They can help you decide whether or not to consolidate depending on your progress.

Important Things To Know About Consolidating Student Loans

In addition to the pros and cons, there are a few other things you should consider if you want to consolidate your federal student loans.

  • You can only consolidate federal loans that are in repayment or in a grace period. You cannot consolidate loans that are in default.
  • To consolidate a defaulted loan, you must first make 3 consecutive monthly payments on the loan, which makes it eligible for consolidation.
  • You cannot consolidate an existing consolidated loan by itself. The only way around this is to include another eligible loan in the consolidation.
  • Private student loans are not eligible for federal loan consolidation. If you want to change the payment schedule on your private loans, you will have to refinance those loans through a private lender.

Should I Consolidate My Student Loans?

Your financial situation and the types of loans you have are the two main factors that will influence your decision. There are a few others as well.

In general, it may be a good idea to consolidate your student loans if any of these apply to you:

  • You have trouble keeping track of your monthly payment due dates. In this case, consolidation will simplify your payments and minimize the risk of missing due dates, which can damage your credit. Still, you should only consider consolidating if you are handling a lot of student loans.
  • You can’t afford your monthly payments. When you consolidate, you can choose a repayment plan that lowers your monthly payments, while still retaining all federal benefits.
  • You have old Perkins or FFEL Loans and are pursuing loan forgiveness. Old Perkins and FFEL Loans are not eligible for forgiveness. Consolidating these loans will make them eligible.

You may NOT want to consolidate if any of these apply to you:

  • Your budget allows you to make more than your set payments every month. If you don’t need to lower your monthly payments, you don’t need access to any income-driven repayment plans.
  • You’re handling only a few student loans. Making payments more manageable is one of the benefits of consolidating. But if you only have a few student loans, it may be better to explore other ways to stay on top of the payments. In this case, you’d only consider consolidation if you need to lower your payments.
  • You qualify for federal loan forgiveness and are close to meeting the requirements. Consolidation wipes out any progress you’ve made toward forgiveness and restarts the clock. You never want to do this.

Should I Refinance Or Consolidate My Federal Student Loans?

As with everything related to finances, there is no one answer that’s right for everyone.

Although both consolidation and refinancing involve combining multiple loans into a single loan, there are a few significant differences in the benefits and drawbacks between these two processes.

Consolidation allows you to retain access to all protections associated with your federal student loan. However, the downside is that it does not lower your interest rate.

Refinancing could help to lower your interest rate if you qualify based on your credit score and financials. However, you will lose access to all federal benefits and protections if you refinance federal student loans.

Things to think about when deciding whether to consolidate or refinance your student loans:

  • Consider refinancing federal student loans if your financials are solid and you’re sure you won’t need any of the associated benefits. If you’re not financially secure it could be better to consolidate federal student loans for now and refinance at a later time.
  • Refinancing is a good option if you qualify for a lower interest rate.
  • Refinancing is the only way to ‘consolidate’ your private student loans. And if you qualify for a lower interest rate, you’ll benefit from the overall lower cost of the loan too.

Before committing to anything, it’s a good idea to speak with your loan providers and ask them any questions that might give you more clarity. Again, research is important. Being well-informed will allow you to make the best financial decisions possible when it comes to managing your student loans and deciding whether to consolidate, refinance, or leave them as is.

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