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Student Loan Consolidation

How to Consolidate Private 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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How to consolidate student loan debt

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”.

Here are some key points about student loan consolidation:

  1. Combining Multiple Loans: With student loan consolidation, borrowers can merge their existing federal or private student loans into one new loan. This applies to both parent and student loans.
  2. Simplified Repayment: Consolidation allows borrowers to make a single monthly payment instead of juggling multiple payments for different loans. This can make repayment more convenient and easier to manage.
  3. Potential for Lower Monthly Payments: Consolidation may extend the repayment term, which could result in lower monthly payments. By spreading the loan balance over a longer period, borrowers can potentially reduce their monthly payment amounts. However, it's important to note that extending the repayment term may result in paying more interest over the life of the loan.
  4. Fixed Interest Rate: When consolidating federal student loans, the interest rate on the consolidated loan is fixed. This provides stability and predictability since the interest rate remains the same throughout the repayment period. Private loan consolidation, on the other hand, may offer a fixed or variable interest rate, depending on the lender and loan terms.
  5. Loss of Benefits: Consolidating federal student loans may result in the loss of certain benefits associated with the original loans. For example, borrowers may lose access to loan forgiveness programs, income-driven repayment plans, or interest rate discounts that were available on the original loans. It's important to carefully consider the potential loss of benefits before opting for consolidation.
  6. Private vs. Federal Consolidation: Private consolidation involves merging multiple private student loans, typically provided by a private lender. Federal consolidation, also known as Direct Consolidation Loan, is available for federal student loans and is provided by the U.S. Department of Education. The process and benefits of private and federal consolidation differ, so it's important to understand the specifics of each before proceeding.

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.

Federal Loan Consolidation: If you are consolidating federal student loans through the Direct Consolidation Loan program provided by the U.S. Department of Education, the interest rate is determined by taking the weighted average of the interest rates on the loans being consolidated and rounding it up to the nearest 1/8th of a percent. This means that your interest rate will not be lower or higher than the weighted average of your existing loans.

Private Loan Consolidation: When consolidating private student loans, interest rates can vary significantly depending on the lender, your creditworthiness, and the current market conditions. Private lenders assess your credit history, income, and other factors to determine the interest rate they can offer you. Generally, borrowers with better credit profiles and higher income may qualify for lower interest rates.

Fixed vs. Variable Rates: Private consolidation loans may offer fixed or variable interest rates. Fixed rates remain the same throughout the loan term, providing stability and predictability in monthly payments. Variable rates, on the other hand, are subject to change based on market conditions and can fluctuate over time, potentially affecting your monthly payments.

Interest Rate Discounts: Some private lenders offer interest rate discounts based on factors such as enrolling in automatic payments or meeting certain criteria. These discounts can help lower the interest rate on your consolidation loan, so it's worth exploring any potential discounts or incentives offered by lenders.

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.

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.

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.

Ultimately, the decision to consolidate your student loans should be based on a thorough evaluation of your current loan terms, financial goals, and the potential benefits and drawbacks of consolidation. Consider reaching out to lenders, financial advisors, or loan servicers to discuss your options and get personalized advice based on your specific circumstances.

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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?

The specific credit score required to consolidate student loan debt can vary depending on the lender and the type of loan you're seeking. Here are some general guidelines to consider:

  1. Federal Loan Consolidation: If you're consolidating federal student loans through the Direct Consolidation Loan program provided by the U.S. Department of Education, there are no credit score requirements. Federal loan consolidation is available regardless of your credit history.
  2. Private Loan Consolidation: When it comes to consolidating private student loans, the credit score requirements will depend on the individual lender. Each lender sets its own criteria for creditworthiness. Generally, private lenders look for borrowers with good to excellent credit scores. A credit score in the range of 670 or higher is often considered a good starting point, but some lenders may require higher scores.

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?

Whether you can consolidate private student loans with a cosigner depends on the policies and requirements of the specific lender you choose. Here are some important points to consider:

  1. Private Lender Policies: Each private lender may have different policies regarding cosigners for consolidation loans. Some lenders may allow cosigners, while others may not offer this option. It's important to research and compare lenders to find the ones that allow cosigners for consolidation loans.
  2. Cosigner Requirements: If a lender allows cosigners for consolidation loans, they will typically have specific requirements for the cosigner. These requirements may include a minimum credit score, income level, and other factors. The cosigner is essentially taking on responsibility for the loan if the primary borrower is unable to make payments.
  3. Cosigner Benefits: Having a cosigner can be advantageous if the primary borrower has a limited credit history, a lower credit score, or does not meet the lender's eligibility requirements on their own. A cosigner with a strong credit profile can help increase the chances of approval and potentially secure more favorable loan terms, such as a lower interest rate.
  4. Cosigner Release: Some lenders offer cosigner release options for consolidation loans. This means that after a certain period of on-time payments, the primary borrower may be eligible to release the cosigner from their obligation. Cosigner release can provide additional financial independence and responsibility for the primary borrower.

How to qualify for student loan consolidation

To qualify for student loan consolidation, follow these steps:

  1. Determine eligibility: Verify that your loans are eligible for consolidation. Federal loans and most private loans are eligible, but certain loans, such as Perkins loans, may have specific requirements.
  2. Choose a consolidation program: Decide whether you want to consolidate through a federal program (Direct Consolidation Loan) or a private lender. Research and compare the options available to find the best fit for your needs.
  3. Gather necessary information: Collect all the required information about your loans, including loan balances, interest rates, and loan servicer contact details. This information will be needed during the application process.
  4. Check credit requirements: Review the credit score and income requirements set by the consolidation program or private lender. Ensure that you meet the necessary criteria or consider applying with a creditworthy cosigner if required.
  5. Submit an application: Complete the consolidation application form provided by the chosen program or lender. Provide accurate and up-to-date information about your loans and personal details.
  6. Review and sign the loan agreement: Carefully review the loan terms, including the interest rate, repayment period, and any fees associated with the consolidation loan. Sign the loan agreement if you agree with the terms.
  7. Follow up and continue payments: Stay in touch with your loan servicer or lender throughout the consolidation process. Continue making payments on your existing loans until the consolidation loan is finalized.


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