How to consolidate student loans

Student loan consolidation can help simplify your finances, and depending on your situatio🐼n, it may even save you money. But there can be drawbacks, so it’s important to weig😼h those before moving forward.

Here’s everything you need to know about consolidating your stude🉐nt loan💙s, whether you have federal or private student debt.

• Introduction to consolidating student loans
• How to consolidate federal loans
• How to consolidate private loans
• Consolidation loan repayment options

Introduction to consolidating student loans

When you consolidate your student loans, you combine your existing debts into a single loan. Depending on the type of consolidation you choose (federal or private), it may also result in a lower in🌟terest rate or different repayment term. Either way, it can help you move to a new student loan servicer or lender and simplify your monthly payments.

Federal student loan consolidation is offered by the government via a Direct Consolidation Loan, which doesn’t rely on your credit to qualify.

“For [federal] consolidation, I like to describe it as ju🌊st combining multiple loans into one, so it isn’t going꧂ to get you a lower interest rate,” explained Kendall Meade, a certified financial planner at SoFi, an online bank and lender that offers student loan refinancing.

Private consolidation, or student loan refinancing, works much differently. You generally must have adequate ꧃credit (or a qualified cosigner) to be eligible. You might also secure more favorable terms, like a lower interest rate or shorter repayment term, depending on your existing loans and financial history. 

You can also refinance൲ federal loans, but that turns them into a type of private student loan. That means you lose access to certain federal protections, like income-driven repayment (IDR) plans that can lead to debt forgiveness, as well as deferment options.

How to consolidate federal student loans

If you have federal student loans, you can use the Department of Education’s Direct Consolidation Loan program to combine your 🎃existing debts. This gives you a single, fixed🎉-rate student loan, simplifying the repayment process if you currently have multiple accounts with various loan servicers. 

However, this process doesn’t offer any savings on interest. When you complete a federal consolidation, your new interest rate is a weighted average of your current rates, rounded up to the nearest eighth of a percent.

It’s completely free to apply for the cons📖olidation program, and most borrowers qualify for it. You can apply online in about 30 minutes on the . Select the loans you want to consolidate, choose a repayment plan, and agree to the terms and conditions to compl🎐ete the application.

Benefits of federal student loan consolidation

Federal student loan consolidation has 🌱its per♉ks, including:

• Simplify payments: If you have several student loans to manage, combining them all into one debt can make payments easier to track.
• Get loans out of default: If you’ve defaulted on your federal loans, consolidation can return them to good standing if you meet certain conditions. 
• Access to more IDR plans: Consolidating certain types of federal loans, such as Federal Family Education Loans (FFEL) or Perkins Loans, can give you access to additional income-driven repayment plan options, which set your monthly payment at a percentage of your discretionary income.
• More forgiveness options: Depending on the type of loan, federal consolidation can offer you access to forgiveness options. If you consolidate Perkins or FFEL Loans, for example, you could become eligible for Public Service Loan Forgiveness (PSLF). 

Drawbacks of federal student loan consolidation

However, there can be downsides to feder🐎al consolidation, too:

• Could restart forgiveness timeline: “If you were already on income-driven repayment or PSLF, your timeline could restart,” said Meade. That means any progress you’ve made toward student loan forgiveness could be erased, leaving you at square one. 
• Loan balance could grow: “If you have any unpaid interest on your existing loans,” Meade continued, “it would be added to your principal balance.” If your loan balance increases, you’ll be stuck paying interest on a larger amount. However, you can avoid this by paying off accrued interest before consolidating. 
• Longer repayment period: Federal consolidation can extend your loan repayment term up to 30 years. While this could lower your monthly payments, you’ll pay more in interest over the long term.

How to consolidate private student loans

If you’d like to consolidate private student loans, the only way to do so is with stu♏dent loan refinancing. While this allows you to combine multiple loans into one debt, you could also secure a lower interest rate or change your repayment term. 

The first step is to research and compare lenders, as interest rates and loan terms vary. Once you’ve found some lenders you like, you can submit an application with each. Each lender will review details about your existing loans, income, credit history, ♕and other factors to determine your eligibility and the interest rates you qualify for. If approved, you’ll sign the final loan agreement and the lender will complete the refinance process on your behalf.

Benefits of private student loan refinancing 

You may be able to take advantage of the following benefits with student loan refinan🌊cing:

• Could get a lower interest rate: Because your interest rate is based on your credit history and other personal information, each lender will likely offer you a different deal. If you have good to excellent credit, you can generally qualify for lower interest rates than those with poor credit. 
• Can switch to a fixed interest rate: Depending on the lender, you might also get to choose between fixed and variable interest rates. If you’re unhappy with a fluctuating rate, you may be able to switch to a fixed interest rate.
• No fee to refinance: Most lenders don’t charge fees to refinance, and you typically have the opportunity to select your repayment term — generally, you’ll see terms of five to 20 years.

Drawbacks of private student loan refinancing 

Refinancing has some cons, such as:

• Lose access to federal loan benefits: You can refinance federal student loans through this process, but by doing so, you’ll lose access to federal loan benefits. Carefully consider whether it’s worth it to refinance federal student loans, as the process is permanent and irreversible. 
• Harder to qualify: Private refinancing has fairly stringent approval requirements. If you don’t have great credit or a steady income, you may not be able to qualify on your own. 
• Could pay more in interest: If you choose a longer repayment term, you’ll have lower monthly payments but you could end up paying more in interest over the life of the loan.

Cosigner requirements for consolidating private student loans

If you aren’t able to qualify for refinancing on you🐷r own, or you want to score more favorable terms, adding a cosigner to your appli💞cation can be a useful option.

A cosigner is a family member or friend with good to excellent credit who agrees to share responsibility for your loan. However, their credit is equally affected by your debt. If you miss a payment, it could neg🦩atively impact both of your scཧores. And if you can’t repay the loan in full, your cosigner will have to take over payments. 

Because of this responsibility, a cosigner should be someone you can communicate openly with and trust. You might also prioritize lenders that offer a cosigner release. Through this process, you can remove your cosigner from the loan after meeting certain conditions — typically, you must make a certain number of consecutive, on-time payments to be elig⛦ible.

Lenders may also have specific requirements for cosigners, so make sure your cosigner is elig🌳ible before submitting an application. 

Consolidation loan repayment options

It’s important to weigh your options when consolidꦉating your student loans. Take the following into consideration before making your choice:

Federal consolidation

In addition to standard repayment options, consolidating your federal loans through the Department of Education can give you access to IDR plans. These cap your payments at 10% to 20% of your discretionary income and forgive any remaining balance at the end of your term.&nb✨sp;

If you consoli༒date your federal loans, 💖you may be eligible for: 

• Standard Repayment
• Graduated Repayment
• Extended Repayment
• Pay As You Earn (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)

It’s important to note that not every Direct C🎀onsolidation Loan is eligible for each of these plans. If you consolidated parent PLUS loans, for example, you have fewer repayment plans to choose from.

To compare your options, 🌸you can use the to find the best repayment plan for you.&💞nbsp;

Private refinancing

Private student loan refinancing typically doesn’t give you access to borrower-friendly repayment plans, such as those offered for federal loans, though options vary by lender. Before you finalize your loan, you’ll usually get to choose your loan term and repayment plan. You can view your estimated monthly payments, how much intere💫st you’ll pay, and w🧔hen you’ll be out of debt.

However, if you later have trouble making your payments, contact your lender 💞to see what they can do to help. Many lenders offer temporary solutions, such as pausing your loan payments for a few months or adjusting your payment amount.