Consolidating your student loans allows you to streamline two or more federal student loans into a single payment. So instead of having to log onto your student loan accounts and make multiple payments each month, consolidation simplifies the proc♋ess.
You can achieve similar results by refinancing your federal and private loans. But because of these permanent changes, it’s important to fully understand the impact of consolidating and refinancing so you can make choices that benefit you both now and in the future.
Here’s what to know abo▨ut consolidating private and federal student loans together:
- Can I consolidate federal, private loans?
- Why consolidate student loans?
- How to consolidate federal loans
- What to know about refinancing loans
- What is the difference between consolidation, refinancing?
- Consolidating education debt with your spouse
Can I consolidate federal and private student loans?
Not exactly. First, it’s important to understand the distinction between consolidating and refinancing. Consolidation only applies to🍒 feder🌺al student loans, whereas refinancing can apply to both federal loans and private student loans.
When you consolidate, you stre♔amline multiple federal loans into one new payment. The new interest rate is averaged based on the rates you had on each loan. You can also extend your repayment term to lower your monthly payments, but that means you may also pay more interest over time.&nbsꦚp;
When you refinance your student loans with a private lender, you could qualify for a lower interest rate if your credit score has improved. You can also choose how many loans you choose to refinance; you can even just refinance one to get different loan terms.
While it’s possible to include federal loans in a refinance, borrowers will lose access to benefits that come with those programs, such as forbearance, deferment, and income-driven repayment plans.
Why consolidate student loans?
You can expect a few potential benefits of choosing to consolidate your federal student loans. While you won’t directly lower your interest rate, you can make it easier to manage your loans with fewer payments. If you end up consolidating all of your federal loans, you could have just one payment to worry about each month.
You could also make payments easier on your wallet by drawing out your repayment term to up to 30 years. They’ll cost more in the long run, but may help your current financial situation. Plus, any payments made towards a loan forgiveness program don’t count, essentially resetting the clock on your forgiveness timeline.
Finally, if you have at least one Direct loan along with others that are not Direct loa🐲ns, consolidating gives all of your federal student loan debt access to income-dﷺriven repayment plans and Public Service Loan Forgiveness.
How to consolidate federal student loans
You can apply onliꦏne to consolidate your federal loans through the U.S. Department of Education for free. The process takes about 30 minutes ▨and needs to be completed in one session.
Here’s what you’ll need to have on hand for your application:
- Your FSA ID
- Personal information, like your address, email, and phone number
- Current student loan information from your loan service
- Income details if you’re applying for any income-driven repayment plans (you can opt to import your adjusted gross income from your most recent tax return via the IRS)
ꦇThe following federal student loans are eligible for consolidation:
- Subsidized Federal Stafford loans
- Unsubsidized Federal Stafford Loans
- FFEL PLUS loans
- Supplemental Loans for Students
- Federal Perkins Loans
- Nursing Student or Nurse Faculty Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans
- Some FFEL Consolidation Loans and Direct Consolidation Loans
- Federal Insured Student Loans
- Guaranteed Student Loans
- National Direct Student Loans
- National Defense Student Loans
- Parent Loans for Undergraduate Students
- Auxiliary Loans
Pros of federal student loan consolidation
- Monthly payments are streamlined into fewer individual bills
- Repayment term can be extended for lower monthly payments
- Gives non-Direct loans access to Direct loan benefits (if Direct loan is part of the consolidation)
Cons of federal student loan consolidation
- Longer repayment period means more interest paid, making your loans more expensive
- Could be in debt longer, which could impact your ability to qualify for other types of loans, like a mortgage
- Lose credit towards payments made for loan forgiveness programs
What to know about refinancing student loans
Refinancing your student loans involves taking out a new loan with a private lender. It can be the same lender you initially borrowed money from, or a completely different one♚. The original loan is completely paid off and you start with fresh loan terms with your new lenಞder.
You might choose to refinance for a couple of reasons. You may qualify for a lower interest rate, es♎pecially if your credit score has increased since you took out 💦the original loan.
And if your original loan had a variable rate that’s starting to rise, you can refinance into a fixed rate loan to stabilize your monthly payment amount. You can also refinance in order to remove a cosigner from the loan (like your parents).
Both private student loans and federal student loans can be refinanced; however, remember that you’ll lose all the benefits associated with federal loans as soon as they’re refinanced with a private lender.
Pros of refinancing private student loans
- You could qualify for a lower interest rate
- You can remove a cosigner from the loan
- You can switch from a variable rate to fixed rate
Cons of refinancing private student loans
- Lengthening your repayment term could increase overall interest payments
- Refinancing federal student loans removes access to all federal loan benefits
- Eligibility depends on your income, credit score, and debt-to-income ratio
What is the difference between student loan consolidation and refinancing?
For starters, consolidation only applies to federal student loans — private student loans are not included. With consolidating, you’re taking two or more federal loans and turning them into one single loan.
Instead of getting a new interest rate based on your credit score, the new rate is calculated from the weighted average of the current loans. Additionally, when you consolidate Direct loans with other federal loans, all of them gain access to your Direct loan benefits. Finally, consol🧸idation applications go directly through the U.S. Department of Education.
Refinancing, on the other hand, is done through private lenders. You can refinance one or more loans to change the terms based on your current income, debt, and credit score. Tha🌺t means you could potentially lower your rate, and your overall payments.
Consolidating student loans with your spouse
Consolidating loans with your spouse is no longer possible with federal stu♕dent loans. They were once allowed starting in the early 1990s, but Congress revoked joint consolidation in 2006. There was no way to spli🌱t the joint loans if the couple divorced or changed their minds about sharing the loans.
It’s also difficult to refinance together with a private lender, with limited options available. Instead of refinancing into a single loan, you can instead have one spouse serve as a cosigner on the refinanced loan, which could help meet credit and income requirements for better loan terms.
Pros of refinancing student loans with spouse as cosigner
- Improve your chances for approval if spouse’s credit score is better
- Qualify for a lower interest rate
- Switch to a different repayment term
Cons of refinancing student loans with spouse as cosigner
- Debt-to-income ratio is impacted for both spouses, which can lower your loan amount for things like mortgage or auto loan
- The refinanced loan (and any negative payment activity) affects both spouses’ credit scores
- It’s considered shared debt if you later get divorced
Both consolidating and refinancing your student loans takes a lot of thought and strategy. Think about your short-term and long-term financial goals to make sure you’ll be happy with your decisions in the next few years or even decades.