Student Consolidation: The Basics
Should I consolidate my student loans? What is student loan consolidation? It’s a popular question and it’s important to understand what student loan consolidation means and how it can impact your student loans.
Student loan consolidation is the process of combining multiple federal student loans into one student loan called a Direct Consolidation Loan. When you consolidate student loans, you are issued a new federal student loan by the federal government, the proceeds of which are used to repay your old student loans.
The direct consolidation loan program is managed by the U.S. Department of Education.
Contact: Federal Student Aid
Phone: 1-800-557-7392
You can consolidate your federal loans after you graduate, leave school or attend school less than half-time enrollment.
Student Loan Consolidation: Key Features
- Only have 1 monthly student loan payment
- Only 1 have student loan servicer
- Can lower your monthly student loan payment by choosing an income-driven repayment term, and extending student loan repayment from 10 years to 20 or 25 years
- Only 1 student loan interest rate
- Only federal student loans (not private student loans) are eligible
We frequently get asked several student loan consolidation questions. Here are some of the most popular questions related to student loan consolidations:
Why Should I Consolidate Student Loans?
There are several pros and cons to a Direct Consolidation Loan.
Pros of Student Loan Consolidation
- If you want to combine multiple federal student loans into one single student loan payment, then student loan consolidation may be the right decision
- You may gain access to certain types of student loan repayment plans, particularly student loan repayment plans such as deferment or forbearance that allow you to limit or postpone your loan payments in the short-term due to economic hardship or loss of employment
- You also may be able to lock in a fixed interest rate loan, for example, if you currently have a variable interest rate loan and do not want to be beholden to swings in interest rates
Cons of Student Loan Consolidation
- While student loan consolidation may enable you to repay your student loans in 10 to 30 years with various student loan repayment plan options, you will end up making more monthly payments and accruing more interest
- You have certain borrower benefits that exist with your current student loans. Some of these benefits may include interest rate discounts or student loan cancellation, for example. If you consolidate student loans, you may lose some of these borrower protections, which can make the cost of repaying your student loan higher.
- Once you consolidate student loans, your old loans are paid off so you cannot go back and reap prior benefits or features
What Types of Student Loans Can I Consolidate?
Student loan consolidation applies to federal student loans, rather than private student loans.
So if you have both federal and private student loans, then you can only consolidate federal student loans.
Your other option is student loan refinancing, which allows you to combine both your federal and student loans into a single student loan, single (lower) interest rate and single student loan servicer.
Per the U.S. Department of Education, the types of federal student loans that can be consolidated include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans
Will Student Loan Consolidation Lower My Interest Rate?
While student loan refinancing lowers your interest rate, student loan consolidation gives you a weighted average interest rate of your existing student loans, rounded up to the nearest 1/8%.
To calculate the weighted average interest rate of your student loans, you can use our weighted average interest calculator.
What Are The Requirements To Consolidate Student Loans?
You must have at least one Direct Loan or FFEL program student loan that is in a grace period or student loan repayment.
Can I Consolidate A Defaulted Student Loan?
Yes, you can consolidate a defaulted student loan. However, you first have to work with your current student loan servicer to agree on proper student loan repayment. Alternatively, you can select a student loan repayment plan for your direct consolidation loan such as Income Based Repayment Plan, Pay As You Earn Repayment Plan, Income-Contingent Repayment Plan.
Are There Prepayment Penalties For Direct Consolidation Loans?
No, you can repay your direct consolidation student loan at any time with no prepayment penalties.
Is There An Origination Fee When You Consolidate Student Loans?
There are no fees to consolidate your student loans. Whether you consolidate student loans with the federal government or choose student loan refinancing, there are no origination fees.
Can Parents Consolidate Parent PLUS Loans?
Yes, you can consolidate Parent PLUS Loans. However, parent loans and student loans cannot be consolidated together.
The parent and the student would have to consolidate their loans separately.
While students can only consolidate student loans during the grace period or when student loans have entered repayment, parents can consolidate Parent PLUS Loans at any time.
When Does Repayment On A Consolidation Student Loan Begin?
Repayment on a direct consolidation student loan begins within 60 days of the student loan disbursement unless you qualify for some form of student loan repayment plan such as student loan deferment or student loan forbearance.
Should I consolidate or refinance my student loans?
The question “Should I consolidate or refinance my student loans?” is a popular one. The answer is: it depends on your financial goals and financial situation.
Student Loan Refinancing: Student loan refinancing allows you refinance all, some or one of your student loans into a new, private student loan with a lower interest rate. Your new student loans pays off your old student loans, and the result is a single student loan, single month payment and single student loan servicer. If you want a lower rate and want to pay off your student loans faster, then student loan refinancing may be best for you.
Student Loan Consolidation: Student loan consolidation is a helpful organizational tool, but it won’t lower your interest rate. If you plan to use income-driven federal repayment programs such as PAYE or REPAYE, then student loan consolidation could make sense. If you plan to pursue Public Service Loan Forgiveness, then federal student loan consolidation could be your preference.
This consolidation vs student loan refinancing calculator compares student loan consolidation and student loan refinancing, and shows you what your monthly payments will look like and how much money you can save.
The Bottom Line
Student loan consolidation can be a great way to combine your federal student loans into a single student loan with a single interest rate and single loan servicer. However, student loan consolidation will not lower your interest rate. If your goal is to lower your interest rate and pay off student loans faster, you should consider student loan refinancing.
While a student loan income-driven repayment plan can lower your monthly payments and help improve short-term cash flow, it will hurt long-term in the form of increased interest payments.
Also, be sure to understand fully which borrower protections and benefits you may lose with student loan consolidation relative to your existing student loans.
Best Student Loan Refinancing For 2019
Overview
| Variable Rates: | 2.49% - 7.27% |
|---|---|
| Fixed Rates: | 3.50%- 7.89% |
| Minimum Credit Score: | 650 |
| Minimum Income: | None |
| Fees: | None |
Details
| Eligible Loans: | Private & Federal |
|---|---|
| Minimum Loan Amount: | $5,000 |
| Loan Terms: | 5-20 years |
| Borrower Residency: | All States except AL, DE, KY, NV, RI |
| Unemployment Protection: | Yes |
| Co-signer Option: | No |
Overview
| Variable Rates: | 2.49% - 7.11% |
|---|---|
| Fixed Rates: | 3.89% - 8.07% |
| Minimum Credit Score: | 650 |
| Minimum Income: | None |
| Fees: | None |
Details
| Eligible Loans: | Private or Federal |
|---|---|
| Minimum Loan Amount: | $5,000 |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All states |
| Unemployment Protection: | Yes |
| Co-signer Option: | Yes |
Overview
| Variable Rates: | 2.50% - 6.65% |
|---|---|
| Fixed Rates: | 3.50% - 7.02% |
| Minimum Credit Score: | 660 |
| Minimum Income: | None |
| Fees: | None |
Details
| Eligible Loans: | Private & Federal |
|---|---|
| Minimum Loan Amount: | $5,000 |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All states |
| Unemployment Protection: | Yes |
| Co-signer Option: | Yes |
Overview
| Variable Rates: | 2.80% - 6.01% |
|---|---|
| Fixed Rates: | 3.39% - 6.69% |
| Minimum Credit Score: | 680 |
| Minimum Income: | $35,000 |
| Fees: | None |
Details
| Eligible Loans: | Private & Federal |
|---|---|
| Minimum Loan Amount: | $15,000 |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All States |
| Unemployment Protection: | Yes |
| Co-signer Option: | Yes |
Overview
| Variable Rates: | 2.49% - 7.41% |
|---|---|
| Fixed Rates: | 3.64% - 7.50% |
| Minimum Credit Score: | 680 |
| Minimum Income: | $24,000 |
| Fees: | None |
Details
| Eligible Loans: | Private & Federal |
|---|---|
| Minimum Loan Amount: | $5,000 |
| Loan Terms: | 5, 7, 10, 15, 20 years |
| Borrower Residency: | All states, except ME, ND, NV, RI, WV |
| Unemployment Protection: | Yes |
| Co-signer Option: | Yes |
Overview
| Variable Rates: | - |
|---|---|
| Fixed Rates: | 1.95% - 4.45% |
| Minimum Credit Score: | Excellent |
| Minimum Income: | - |
| Fees: | - |
Details
| Eligible Loans: | Private & Federal |
|---|---|
| Minimum Loan Amount: | $25,000 with graduate degree ($40,000 with undergraduate degree) |
| Loan Terms: | 5, 7, 10, 15 years |
| Borrower Residency: | Only for the residents of New York City, San Francisco, Palo Alto, Los Angeles, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida) or Greenwich |
| Unemployment Protection: | - |
| Co-signer Option: | Yes |
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