Federal Student Loan Consolidation with Bad Credit (Complete Guide for Beginners)

Last Updated on November 10, 2020

This page provides detailed information on Federal Student Loan Consolidation with Bad Credit. Here you will learn what student loan consolidation is, the different types of student loan consolidation, where to consolidate student loans, how to choose the best student loan consolidations, best student loan consolidations with bad credit, requirements for student loan consolidation with bad credit, and all other important student loan consolidation information you may need. Please stay tuned.

What Is Student Loan Consolidation?

Student loan consolidation was created to make it easier for millions of borrowers to pay off their debts. Federal and private lenders recognize that lower monthly payments may be the best option if you don’t get the job you want immediately after graduating from college.

Student loan consolidation is a way to combine multiple student loans into a single loan with a fixed interest rate based on the average of the interest rates on the loans being consolidated.

In this process, you take out a new loan, which is then used to pay off your other existing student loans. Instead of having multiple loans and loan payments, you have only one. You can consolidate all federal student loans and most private student loans.

Loan consolidation can make your life easier, but you need to do it carefully to avoid losing the benefits you currently have or are entitled to under the loans you currently have. But first you need to make sure that you are eligible for consolidation. Only then should you start researching the best loan options available to you.

Types of Student Loan Consolidation?

There are two major types of student loan consolidation: federal and private student loan consolidations. Private consolidation is often referred to as refinancing. These processes are often confused, but they’re very different.

Federal student loan consolidation combines multiple federal loans into a single federal loan through the Department of Education. You may need to consolidate to be eligible for some federal loan repayment programs, but federal consolidation won’t lower your interest rate. It may lower your payments by extending them.

Student loan refinancing, which is also called private student loan consolidation, is a financial move you do through a private lender. If you qualify, you can save money by getting a lower interest rate.

Many people use the terms “consolidation” and “refinancing” interchangeably, but in reality they mean different things. Consolidation only applies to federal loans, which you can pool through a direct consolidation loan with the U.S. Department of Education.

When you combine private loans or a mix of private and federal loans, you are actually refinancing rather than consolidating. When you refinance, the private lender pays off all of your individual loans and issues you one new loan, ideally at a lower interest rate and better terms.

Private and Federal Student Loan Consolidation with Bad Credit

Federal Student Loan Consolidation: Doesn’t require a credit check, so even if you have bad credit you will qualify. A federal Direct Consolidation Loan can even rehabilitate your student loans if you are in default. There are a few key benefits to doing this.

Consolidated loans have a fixed interest rate based on the weighted average of the interest rates on all your loans, rounded up to the closest one-eighth of a percent. If your original loans have variable interest rates, getting a fixed rate is usually a good move.

Consolidating your federal loans gives you the option of paying them through an income-driven repayment plan such as the Income-Based, Pay-As-You-Earn, or Income-Contingent plan. Any of these plans can dramatically lower your monthly payment.

Consolidating Private Student Loans: This advice applies to refinancing, not consolidating your student loans. If your score is under 650, it is unlikely you will qualify for consolidation from private lenders by yourself. The simplest way to refinance student loans with bad credit is to enlist a co-signer with good credit and continue to pay bills on time until your credit score improves.

Things get more difficult without a co-signer. Local credit unions usually have softer requirements than traditional lending services. They might be willing take a chance.

A quick way to boost your score is to lower your utilization by paying down your credit cards to at least 30% of your limit. Wait a couple of months, and then apply for student loan consolidation.


Refinancing your federal loans with a private lender will cut you off from federal benefits such as income-driven repayment plans. It will also disqualify you from student loan forgiveness programs through the government. However, refinancing with a private lender may result in a lower interest rate so there are trade-offs. But if your credit score isn’t great, a lower interest rate can be tough to find. And if your credit is really bad, you may have a hard time finding lenders to refinance with you at all.

Private lenders want to see a good credit history before you can refinance your student loans. If your credit is tarnished, a cosigner with great credit is the fastest way to get around that problem. Some lenders include terms that release your cosigner after you’ve proven yourself by making regular payments for a certain length of time.

Student loans are a better bet for lenders than other types of debt, because they can’t be discharged in bankruptcy. That means some lenders are a little more lenient in the credit scores they accept for student loan consolidation. It’s important to do your due diligence, however, and make sure the lender is legitimate. People with low credit scores are prime targets for disreputable lenders.

Interested in exploring other options? Credit unions are nonprofit banks that often serve a specific community. Because they are not for profit, they can offer better terms and lower interest rates than traditional banks do. Some will refinance your loans even if your credit score is less than ideal.

RELATED: A Complete Beginners Guide to Federal Student Loan Consolidation

Consolidating Defaulted Student Loans

Defaulted student loans can still be consolidated under one of the income-driven repayment plans. To enroll in a different repayment plan, you need to make three consecutive on-time payments.

Your loans will no longer be in default once they are consolidated into a Direct Consolidation Loan, however, it will remain on your credit report as a negative mark. As an alternative, you can opt to enter student loan rehabilitation, which will remove defaulted student loans from your credit report.

It is unlikely you will find a lender to consolidate private student loans in default. In this case, contact your lender and request repayment assistance. They might be willing to offer forbearance (a temporary pause on payments) or temporarily adjust your monthly payment. Do this before they send your debt to collections. The original lender is more likely than a debt collector to work with you.

How to Consolidate Federal Direct Loans

The Federal Direct Consolidation Loan Program begins with filling out an application and promissory note on https://studentloans.gov. You will need loan records and account statements. The form asks basic questions (name, Social Security number, date of birth, address, etc.); what loans do you and do not want to consolidate; what is the payment plan that you will use.

There also is a section detailing certifications, terms and conditions and borrower’s rights and responsibilities. If you sign and date the application, it is a binding contract. If you submit it without signing, the application can’t be processed. There are no fees associated with the Direct Consolidation Loan process. The application process is free.

Before you commit, however, compare direct student loan consolidation with the student loan consolidation and refinance programs available in the private sector.

How to Consolidate Private Student Loans

Refinancing should only be done if it is going to lower the interest rate you pay. Private lenders can do that because they use factors not used by the Direct Consolidation Loan program, to arrive the interest rate.

For example, private lenders will use your credit score and income to arrive at a rate that might be lower than what you are paying. They also can consolidate federal and private loans, while the Direct Consolidation Loan program does not allow private loans to be consolidated.

When you consolidate student loans through private lenders, you are essentially refinancing your loans. Again, the combination of multiple student loans, whether federal or private, only makes sense if you are going to receive a lower interest rate and reduced monthly payment terms.

How to Choose the Best Student Loan Consolidations?

Student loan consolidation can make your life easier, simplify your finances, lower payments, and make it easier to find ways to pay off your debts. But choosing the right type of consolidation is an important decision. There are many options and there is no single perfect answer for all borrowers. Here, are steps to follow that can help you choose the best consolidation for your specific loan profile.

STEP1. Is Federal or Private Consolidation Better for You?

The first big decision involves whether to pursue consolidation through the government, or a private lender. The U.S. Department of Education offers a Direct Consolidation Loan program, but it doesn’t lower your interest rate and only federal loans are eligible.

Private lenders can consolidate both private and federal loans and potentially lower your interest rate, but you might lose eligibility for certain federal benefits. To help you decide which path is better for you, consider the following questions:

What type of student loans do you have?

Private loans cannot be consolidated through the federal government. If you have both private and federal loans and want to bundle them all into a single monthly bill, you should explore private refinancing options. (Note that you don’t have to include all of your loans when you consolidate. If it’s advantageous to refinance some but leave others intact, you can do that.

Are you currently taking advantage of income-based repayment options?

If your salary is low and you’re taking advantage of federal payment plans that cap your monthly bill to a percentage of your income, it might be best to stick with federal consolidation.

However, if you’re able to make your monthly payments without any income-based adjustments, you should see if you can get a better rate with a private lender. It could save you thousands of dollars in interest over the life of your loan.

Are you eligible for student loan forgiveness?

People who work in public service jobs might be eligible for forgiveness of federal student loans after 10 years of consistent payments. If you’re a teacher, social worker, government employee, nurse, or employed by a nonprofit organization, you might be able to remain eligible for loan forgiveness by consolidating through the federal government.

However, you’d lose progress toward the 10-year requirement and have to start over again. Refinancing with a private lender would disqualify you from federal loan forgiveness, but it might make sense if the savings from a lower interest rate are greater than the amount that might be forgiven. Weigh the tradeoffs before making a decision.

What are your current interest rates?

If you’re paying more than 4% interest, you might be paying too much. But the only way to lower your interest rate is by refinancing through a private lender. Federal consolidation doesn’t lower your interest rate, and might actually increase it. The interest on the consolidated loan would be a weighted average of the underlying rates, rounded up to the nearest eighth of a percent.

How strong is your credit score? The federal government does not consider your credit score when you apply for consolidation. That can be helpful if you have a spotty credit history. But if your FICO score is 650 or higher, you might qualify for more attractive interest rates from a private lender.

STEP2: Do You Want To Change Your Payoff Timetable?

The next decision is how long you want to take to pay back your loans. One of the benefits of consolidation both federal and private is that you can change the term length.

Do you want to lower your monthly payments?

Both federal and private consolidation enable you to lengthen you payback period, which will lower your monthly payments. You can choose to extend your 10-year loans into 15-, 20-, or even 30-year loans. However, if your interest rate remains the same, you will end up paying more over the life of the loan. By refinancing to a lower interest rate, you might be able to lower your payments without extending the term of the loan.

Do you want to get out of debt faster?

If you are able to pay a bit more each month, or if your credit history qualifies you for significantly lower interest rates, you might want to shorten your payback period. Choosing a shorter payoff time frame will save you money on interest.

Do you want a custom time frame?

If you are already 3 years into your 10-year repayment plan, and want to consolidate your loans with a 7-year payback period, the only way to do that is through a private lender. Federal consolidation is available in increments of 5 years, and options depend on the amount you owe.

STEP3: Choose a Lender

Your consolidation options will depend on which lender you choose. To make the best decision, it makes sense to get personalized quotes from different lenders:

If you’re consolidating through the federal government, there’s only one application to fill out. You’ll need to complete it in one sitting, so gather information about your existing loans before you start. Then go to studentloans.gov. Log in and select the “repayment and consolidation” tab.

If you’re refinancing with a private lender, it’s a good idea to shop around for the best rates. Finding the right lender can be daunting, but we’ve done a lot of the research for you. We highly recommend that you get at least three quotes before making a decision.

How to Compare Student Loan Consolidations?

Try to compare loan rates from at least two lenders before you apply for a loan consolidations. Consider interest rates, credit requirements, loan amounts, repayment terms and other factors to choose the Best Student Loan Consolidations for your financial situation.

Best Student Loan Consolidations

There are hundreds, if not thousands, of student loans. We researched and reviewed dozens of them before selecting the best competitors. We have selected these specific student loans as the Best Student Loan Consolidations based on their interest rates, transparency, product offerings, track records, ease of applying, and customer service.

SoFi: Leading Student Loan Refinancing Provider

  • APR: 2.25% – 6.16%
  • Minimum credit score: 700
  • No Maximum when refinancing

Splash Financial: Special Offers for Medical Resident and Fellow Refinance Products

  • APR: 1.89% – 6.66%
  • Minimum credit score: 650
  • No Maximum when refinancing

Earnest: Earnest Empowers People With The Financial Capital They Need To Live Better Lives.

  • Variable rates starting at 1.99% APR (with 0.25% autopay discount)
  • Minimum credit score: 650
  • Refinance up to $500K

Laurel Road: Operates in all 50 states; 2nd largest student loan refinancing lender

  • APR: 1.99% – 6.20%
  • Minimum credit score: 660
  • No refinancing amount maximum

Credible: Credible is an online marketplace that provides borrowers with competitive, personalized loan offers from multiple, vetted lenders in real time.

  • Free to use, no hidden fees
  • Minimum credit score: 650
  • No refinancing maximum amount

Commonbond: For every loan they fund, they contribute to the education of a child in need

  • APR: 1.99% – 5.79%
  • Minimum credit score: 660
  • Refinance up to $500K

Lendkey: Works with 300+ community lenders for higher approval chances

APR: 1.99% – 8.77%

Minimum credit score: 660

Refinance up to $300K

Eligibility Requirements for Student Loan Consolidation

While you do not need to meet any minimum for combining debt under the federal Direct Consolidation Loan program, private lenders and loan companies tend to demand a minimum loan balance.

You cannot consolidate private student loans with federal student loans, and you can only consolidate the loans you hold in your name; this means that you cannot consolidate your own loans with your spouse’s or with loans your parents may have taken out to finance your college education.

It’s difficult to refinance student loans with bad credit unless you apply with a co-signer. You or your co-signer generally need a credit score at least in the high 600s to qualify for student loan refinancing. Lenders’ minimum credit score requirements range from 650 to 680.

Student Loan Consolidation vs. Student Loan Refinancing

Student loan consolidationStudent loan refinancing
What does it do?Combines multiple federal loans into one federal loan.Combines private and/or federal loans into one private loan.
Which loans can I combine?Federal loans only.Private and/or federal loans.
Can I lower my rates?No.Yes.
Can I save money?No. Consolidation may lower your payments by extending the loan term, but your interest amount will increase.Yes.
Can I access federal loan protections, repayment options and forgiveness programs?Yes.No.
Will I pay just one monthly bill?Yes.Yes.

Benefits of Student Loan Consolidation

Applies to All Loans

Streamlining your bill payment process: With just one loan, you have only one repayment due date to remember and one check to write.

Extending your repayment term: With a new loan, you can lengthen the amount of time you have to repay, often between 12 and 30 years (up from the standard 10).

Lowering the monthly payment amount: Lengthening the term of your loan means that you will be paying less each month.

Getting borrower benefits: Lenders will often offer loan holders certain benefits (discounts for auto-payments, a record of on-time payments, etc.) for being a good borrower. If your lender does not provide any benefits, you may want to consider consolidating your loans with a lender who does.

Just for Private Loans

Lowering your interest rate: If you have one or more private student loans and have improved your credit score since obtaining your loan, you may be able to qualify for a consolidated loan with a lower interest rate.

Switching from a variable to a fixed-rate loan: If you have private student loans at differing variable rates of interest, you may be able to consolidate and get one new loan with a fixed rate of interest—a good move if rates have dropped significantly since you were in school.

Just for Federal Loans

Getting into an alternate repayment plan: Consolidation can make you eligible for federal loan programs that make it easier to pay off your loans.

Graduated repayment allows you to begin payments at a lower monthly amount, then gradually increases that repayment amount every two years.

Income-sensitive repayment, which calculates your monthly payment amount as a percentage of your pretax monthly income.


Before applying for a loan, make sure you understand what you are spending your money on and how much you really need. Try not to borrow more than you can repay, and make sure you can handle monthly payments along with your other obligations.

Remember to compare lenders to find the best for you. Look at several lenders and compare interest rates, fees, and other terms. Take a close look at the situation so you can choose the loan that will work best for you.

We hope you will find this information useful. Do you have any queries on Federal Student Loan Consolidation with Bad Credit? Please feel free to let us know so we can assist you with any information you will need.

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