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Your Guide to Student Loan Consolidation

Elyssa Kirkham

May 11, 2019

By the time they leave college, most students are facing repayment of multiple student loans taken out over several semesters. Many have different kinds of student loans to manage, such as subsidized or unsubsidized and federal or private.

Keeping track of different student loan accounts and servicers can be a major headache. But the consequences are even worse when you don’t — lose track of a student loan and you could end up in delinquency or default.

If handling all your student loans has your head spinning, the good news is that student loan consolidation can simplify your debt.

What is student loan consolidation?

Student loan consolidation allows borrowers to combine multiple student loans into a single balance with just one lender and one monthly payment. This can make managing student debt simpler and give you more control over your student debt.

It’s important to note that there are two different types of student loan consolidation:

  • Federal student loan consolidation that combines federal student loans
  • Private student loan refinancing that can combine or replace federal and private student loans

Here’s a closer look at these student loan consolidation options, along with some benefits and drawbacks to each one.

Federal Direct Consolidation

If you have federal student loans, you can combined them into a single Federal Direct Consolidation Loan, with a fixed interest rate that is a weighted average of your existing loans.

Overall, consolidating federal student loans is fairly simple. There’s no credit check or fees involved, and it’s an option available for any federal student loans (but not private student loans).

To apply for federal student loan consolidation, you’ll need to complete the Direct Consolidation Loan Application and Promissory Note). This includes providing contact and identifying information along with some references. Next, you’ll list the federal student loans you wish to consolidate (as well as any you don’t). Sign a promissory note agreeing to repay the new Direct Consolidation Loan and select the federal student loan repayment plan of your choice.

Make sure to submit your Direct Consolidation Loan application online to, or by mail. Also, keep making payments as usual until you receive confirmation from you new servicer that your previous loans were paid off and replaced.

Is federal student loan consolidation right for you?

There are plenty of reasons to take advantage of a Direct Consolidation Loan to combine student debt:

  • Simplify student debt: Consolidating federal student loans can combine several student loans into one, which can simplify repayment. You can even pick and choose which student loans to consolidate — and which to leave as they are.
  • Switch repayment plans: This move also gives you the chance to choose a new payment plan for your consolidated loan, such as an income-driven or extended repayment plan that can lower monthly payments.
  • Become eligible for federal student loan programs: Consolidating can also help borrowers convert federal student loans ineligible for certain repayment plans or forgiveness options into a Direct Consolidation Loan that is eligible. Parent PLUS Loans, for example, are only eligible for an income-driven repayment plan (Income-Contingent Repayment, specifically) if they’re first consolidated.
  • Retain federal student loan benefits: You’ll still have the option to change repayment plans in the future or take advantage of federal student loan forgiveness programs. Don’t worry about consolidating subsidized student loans — you’ll retain the benefits of the federal interest subsidy even after consolidating these loans.

There is one potential downside to federal student loan consolidation: this option can’t lower your student loan rates. Your new rate will be based on the current rates you’re paying on your student loans, so what this debt is costing you won’t change. If it does, it’ll be a slight increase; your Direct Consolidation Loan rate is calculated as a weighted average that’s rounded up to the nearest eighth of a percent.

Lastly, combining student debt with a Direct Consolidation Loan is permanent and can’t be reversed. So it’s important to weigh your options and make sure this is the right option for you before you take this step.

Private student loan refinancing

Another option for consolidating student loans is refinancing with a private lender. The process for private student loan refinancing can be used to combine student loans into a single, new balance.

But the similarities between student loan refinancing and federal consolidation pretty much stop there. Student loan refinancing can be used for both federal and private student loans, for example.

The process to refinancing student loans is also different. First, you can compare lenders and choose to apply for the student loan refinancing option that best meets your needs. Then, you’ll have to apply for student loan refinancing, which will include a credit check. If approved, you’ll have a new private student loan that will pay off and replace existing student loans.

When does student loan refinancing make sense?

Refinancing student loans with a private lender can be beneficial in some situations, but not others. It’s important to understand this option to decide if it’s a good fit for you. Here are some signs you could benefit from refinancing student loans:

  • You can qualify for student loan refinancing. Getting your student loan refinancing application approved involves more steps than federal consolidation. Lenders will check your credit, employment, and debt-to-income ratio to evaluate your refinancing application. You’ll need a good credit history and credit score in or above the mid-600s to refinance student loans with most lenders. A solid employment history and higher income can also improve your approval chances.
  • You have a chance at lowering student loan rates. Student loan refinancing is really the only way to lower your rates and the student loan interest you pay. If you have higher-interest student debt such as Direct PLUS Loans or private student loans, it can be worth investigating if refinancing could help you pay less. You’re more likely to save if you also have good or excellent credit that would help you qualify for lower student loan rates.
  • You can refinance private student loans. If you have private student debt, refinancing is your only option to combine these student loans or reset your loan term.
  • You can refinance cosigned or parent student loans. Many borrowers end up with student loans that are shared or owned by other people. Your parents might have cosigned a private student loan with you, for instance, or taken out Parent PLUS Loans on your behalf. If you want to switch these student loans to be in your name only, refinancing student loans can help achieve that.

It’s easy to feel overwhelmed by student debt, especially when you have multiple loans of different types. Combining them into a single loan, whether through federal student loan consolidation or private refinancing, can help lower the stress of managing all those loans.

At least, as long as it’s the right move for you. These options have their pros and cons, so you must weigh these to find the best way forward with your student debt.

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