A Complete Beginners Guide to Federal Student Loan Consolidation

Last Updated on November 9, 2020

This page provides detailed information on Federal Student Loan Consolidation. 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, student loan consolidation requirements and all other important student loan consolidation information you may need. Please stay tuned.

What Is Student Loan Consolidation?

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.

The amount of money you are eligible to borrow depends on your college costs for a particular year. If you graduate in four years, you will likely have four loans even more, if you also took a private loan for additional funds.

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 basically two major types of student loan consolidation: federal and private student loan consolidation. 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.

Consolidating Private Student Loans

Private student loan consolidation, or refinancing, means replacing multiple student loans (private, federal or a combination of the two) with a single, new, private loan. You’ll save money if your new loan has a lower interest rate.

Your financial history including your credit score, income, job history and educational background will dictate your new interest rate when you refinance. You typically need a credit score at least in the high 600s to qualify, and rates range from around 2% to more than 9%.

Consider refinancing if you have:

  1. Made at least a few on-time student loan payments after leaving school.
  2. Good or excellent credit, generally defined as credit scores of 690 or higher.
  3. A stable job.
  4. Access to a co-signer with those characteristics, if that doesn’t sound like you.

Refinancing federal student loans into a private loan means losing consumer protections specific to federal loans. Those include the option to tie payments to income and opportunities for loan forgiveness.

Like the federal government, private companies offer the option to consolidate multiple student loans into one. But while you can’t transfer private loans to the federal government, you can consolidate both federal and private loans with a private lender.

The goal with this process is not only to get the ease of a single payment, but to receive a lower interest rate based on your financial history.

Use a consolidation calculator to compare monthly payments under three different scenarios: federal student loan consolidation, private student loan refinancing and income-driven repayment plans.

RELATED: A Complete Beginners Guide to Finding the Best Student Loans

Consolidating Federal Student Loans

Federal loan consolidation doesn’t have a credit requirement, and it offers the benefit of a single loan bill and potentially lower payments. But it’s only for federal loans, and it won’t cut your interest rate.

Consider federal consolidation if you:

  1. Need to consolidate to be eligible for income-driven repayment or public service loan forgiveness. This is the case if you have Federal Family Education, Perkins or parent PLUS loans.
  2. Want a single federal loan payment, but don’t need it to be drastically lower.
  3. Are in student loan default and want to get back on track.

When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan. You’re generally eligible once you graduate, leave school or drop below half-time enrollment. Consolidating your federal loans through the Department of Education is free; steer clear of companies that charge fees to consolidate them for you.

When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next ⅛ of 1%. So, for instance: If the average comes to 6.15%, your new interest rate will be 6.25%.

Additionally, you’ll get a new loan term ranging from 10 to 30 years. Your repayment term will generally start within 60 days of when your consolidation loan is first disbursed and will be based on your total federal student loan balance, among other factors.

How to Consolidate Federal Student Loans?

Log in to studentloans.gov and click on “Complete Consolidation Loan Application and Promissory Note.” You’ll need to finish the application in one session, so gather the documents listed in the “What do I need?” section before you start and set aside about 30 minutes to fill it out.

  1. Enter which loans you do — and do not — want to consolidate.
  2. Choose a repayment plan. You can either get a repayment timeline based on your loan balance or pick one that ties payments to income. If you pick an income-driven plan, you’ll fill out an Income-Driven Repayment Plan Request form next.
  3. Read the terms before submitting the form online. Continue making student loan payments as usual until your servicer confirms consolidation is complete.

If your loans are in default, consolidation is one of a few methods to get your loans back on track. To consolidate defaulted loans you’ll need to make three full, on-time consecutive monthly payments on the defaulted loan and agree to enroll in an income-driven repayment plan.

Eligibility Requirements for Student Loan Consolidation

In most cases you are considered eligible to consolidate your loans if you are:

  1. Not currently in school or are enrolled at less than part-time status
  2. Currently making loan payments or are within the loan’s grace period
  3. Have a good repayment history (meaning you are not in default on your loans)
  4. Carrying at least $5,000 to $7,500 in loans

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.

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.


Do not mix Federal and Private Loans. If you have both federal student loans and private student loans, you should consolidate them separately, not together.

Private student loans lack certain protections. Combining them with federal loans will disqualify you from applying for the benefits provided for federal student loans, such as to extending the loan-payment period, income-driven repayment plans, and federal loan forgiveness programs.

That would give you two loan payments per month, which is still simpler than four or five or more of them. And that’s before you go to grad school.

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.

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


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, origination 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? Please feel free to let us know so we can assist you with any information you will need.

Please, do not hesitate to share it with friends, colleagues and relatives whom you know may be in need of this kind of information. Thanks for caring and do have a nice one ahead!

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