Student Loan Consolidation

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Student Loan Consolidation

How to Consolidate Student Loans

With college education costs getting higher every year, more loans are being taken out and the amount of student loan debt is higher than it’s even been. In fact, over the past three decades, the cost of attending a public university has almost tripled. With the maximum loan amount often not being enough for students, many are resorting to taking out multiple loans. Having multiple loans with different terms and rates can not only be confusing but end up costing you more money. For students in this situation, a common method of simplifying their finances and potentially saving money is through student loan consolidation.

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What is Student Loan Consolidation?

Student loan consolidation is the act of combining multiple student loans into one loan. This gives borrowers one interest rate, one monthly payment, and one set of terms to use rather than having to juggle multiple different loans.

The majority of student loans can be consolidated but depending on whether your initial loan was federal or private, you may only have specific options for where you can consolidate. Although the term can refer to both types of loans, you may commonly hear private loan consolidation called “refinancing”.

How Does Student Loan Consolidation Work?

We will cover more details below when we talk about the different types of student loan consolidation, but here are the basics.

If you want to consolidate a federal loan, you will not be saving any money. The only option for consolidating federal loans and maintaining the benefits is via the federal government. When you do this, you will still be paying the same interest rate, but you could potentially pay over a longer period, lowering your monthly payments.

There is an exception that allows refinancing of federal loans through private lenders which we will cover in the next section.

Private student loan financing, unlike federal, requires a credit check. If you want to receive a lower interest rate and save money, you will likely be required to have a stable job, have a good credit score, or have access to a cosigner with good finances.

Once your loans have been refinanced or consolidated, you will only have one loan to pay off. Depending on if the loan is federal or private, your interest rate will be the same or lower and your monthly payments will likely be lower regardless of loan type.

Types of Student Loan Consolidation

Depending on whether you have federal loans, private loans, or a combination of both - you have a few options to consider when consolidating your loans.

Federal Loan Consolidation

If you have federal loans, the best option is usually consolidating them through the US government.

The advantage of consolidating your federal loans through the government is that you will retain all of the protections and benefits that come with the federal loans. If you decide to refinance your federal loans privately (which is an option), you will likely lose all of these benefits.

When consolidating a federal loan, the government will take all of your current loans, pay them off, and replace them with what is known as a direct consolidation loan.

Some important notes about federal consolidation:

  • No credit check is required
  • Your interest rate will not change
  • The loan term will be between 10 and 30 years

Private Loan Refinancing

When consolidating private loans, lenders refer to it as refinancing. The reason for this is that when you refinance, you will often be able to receive a lower interest rate than what you are currently paying.

Private loan refinancing involves taking multiple student loans - whether private or federal - and replacing them with one new private loan.

Your financial history will be taken into account for private refinancing, unlike federal consolidation. This means that your credit score, income, job history, and more will be considered when taking out a loan.

Private loan consolidation should usually only be considered if you have a decent job and a relatively high credit score. This is because, without those, you will be unlikely to receive a lower rate or better terms which negates any potential benefit from refinancing.

It’s important to note that you can refinance federal loans into private loans. The downside is that all potential consumer protections and benefits, such as potential loan forgiveness, will be forfeited during the process.

What Are My Options For Student Loan Consolidation?

When considering student loan consolidation, it’s important to decide what the reasoning for doing so is.

If you want to receive a lower interest rate due to higher income and a better credit score, you may want to consider private loan refinancing.

If you have multiple federal loans, and you want to retain the benefits afforded to you by the federal government, federal loan consolidation is likely the route you want to take.

It’s important to note that federal loan consolidation will never reduce your interest rate. Rather, your new loan rate will be an average of all the loans you are consolidating.

Private loan refinancing on the other hand will likely reduce your interest rate if you have a good financial history and credit score.

Pros & Cons of Consolidating Student Loans

Although people may believe that there is no downside to consolidating your student loans, there are factors that need to be considered before you begin the process. Consider the following.


  • Loan consolidation can spread your payments across a longer period (up to 30 years), providing you with lower monthly payments.
  • You have the potential to lower your interest rate, which can save you money monthly and overall.
  • Variable-rate loans can be changed to a fixed rate.
  • You will only have one loan to manage and keep track of.


  • If the interest rate remains unchanged but the repayment period is longer, you can end up paying much more money in interest.
  • Changing federal loans to private can remove your many benefits such as discounts, rebates, or cancellation benefits.

What Rates Can I Expect to Pay With Student Loan Consolidation?

Depending on which route you decide to go down (federal or private) the rates you can expect to pay to vary greatly.

When you consolidate your federal student loans, it doesn’t matter what the current rate is for new loans. The rate you will receive will be the average of all loans being consolidated.

This means if you have two equal-sized loans, one at 5% and one at 10%, your new consolidated loan will have a 7.5% interest rate.

Private loan refinancing depends entirely on your current financial situation. If you have impeccable credit and a good income, the current going lowest fixed rates for refinanced loans are sitting around 2.5% and up.

Can I Consolidate Private Student Loans?

Private student loans can be consolidated. It is called refinancing and it can only be done with other private lenders.

It isn’t possible to take a private loan and consolidate it through the government. Your new loans terms will be fully dependent on your financial history and income.

Can I Consolidate Federal Student Loans?

Federal student loans can be consolidated in two ways.

First, you can consolidate through the federal government. Your loans will be consolidated into one new loan with a fixed interest rate. You will retail all benefits and protections that those loans came with in the first place.

Your second option is to consolidate your federal loans with a private lender. If you go down this route, you may get a better interest rate, but you will lose the federal loan benefits.

Should I Consolidate My Student Loans?

This is a question that is entirely dependent on your financial situation, current loans, and your goals for refinancing.

The current train of thought is if you only have federal loans, do not refinance. This is due to the current interest free-payments period the federal government has. This period ends on January 31, 2022, at which point you can begin considering consolidation.

Private loan refinancing is a good option at the moment. If you have a good income and credit score, the current interest rate environment means it’s likely that you will be able to secure a lower rate than you currently have.

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Can I Save By Consolidating My Student Loans?

If you are consolidating your loans with the federal government, you will not save any money. In fact, you will likely be paying more money.

This is because your interest rate will not lower, and your payment window may extend. So while your monthly payments might be lower due to having more years to pay the loan off, your overall interest paid will be higher.

Consolidating loans privately can likely save you a lot of money. If you can secure a lower interest payment, this can go a long way towards saving money overall on your loan.

What Credit Score Do I Need in Order to Consolidate Student Loan Debt?

Consolidating federal loans doesn't require any particular credit score. This is because your income and financial picture is not considered by the federal government.

When refinancing with a private lender, the score required varies. While each lender has their own requirements, most lenders have a minimum requirement of at least 650.

Can I Consolidate Student Loans While Still in School?

Federal loans are not able to be consolidated while you are still in school.

The US government states that the earliest someone can consolidate their federal loans is when they enter the grace period of the loan, which occurs post graduation.

Private loans can sometimes be refinanced while still in school, but it depends on the lender. Most lenders require a bachelor degree, sufficient income, and a good credit score to refinance which is something most college students don’t have.

Can I Consolidate Private Student Loans With a Cosigner?


Remember, federal loan consolidation does not take your income or credit score into account, so you will not need a cosigner.

Private loans, however, do require a good credit score and income. If that doesn't sound like you, a cosigner may be needed.

Your cosigner will need to meet all of the qualifications the lender lays out, and if you default on the loan they will then be responsible for all of the payments.

Compare and Find the Best Student Loan Consolidation Rates Online

Here are the current rates for the leading student loan consolidation companies.

Company Fixed-Rate Variable Rate
Earnest 2.44%-5.79% 1.88%-5.64%
SoFi 2.49%-6.94% 1.74%-6.59%
Discover 2.99%-6.74% 1.99%-5.74%
LendKey 2.49%-7.75% 1.90%-5.25%

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