How to Consolidate Student Loans

To consolidate student loans, student loan borrowers have 2 options depending on the type of student loan.

1) Direct Consolidation Loan for Federal Student Loans

Under the Direct Consolidation Loan Program provided by the Department of Education, student loan borrowers are eligible to consolidate multiple federal student loans into one Direct Consolidation Loan.

When consolidating student loans using the Direct Loan Consolidation program, the new loan will have a “weighted average” interest rate. With the new weighted average interest rate, borrowers will accrue nearly the same amount of interest, but most likely a bit more due to rounding percentages in the calculation.

Why consolidate:

A federal Direct Loan Consolidation makes it easier to keep track and manage your student loans, while also allowing you to switch federal student loan servicers if desired. Lastly, you can select an alternative or Income Driven Repayment plan to lower monthly payments and even enroll in the Public Service Loan Forgiveness program.

How to Apply:

Borrowers can apply for free using the electronic application here.

What to Expect:

The electronic application takes between 15 and 30 minutes to complete. During the application you will need to provide personal information, contact information, references, employment data, and lastly select various terms and conditions of the consolidation.

The Direct Loan Consolidation program does not use a borrowers Debt-to-Income ratio or credit score (FICO) during the underwriting and approval process, therefore most student loan borrowers are eligible.


2) Private Consolidation for Private Student Loans

Also referred to as student loan refinancing, several lenders offer private student loan consolidation.

The advantages of a private student consolidation typically include combining multiple student loans into one, while also lowering the interest rate via refinancing (current refinancing interest rates).

The downfall of private student loan consolidation is most lenders don’t offer than same consumer protections (alternative repayment programs) as the federal consolidation program.

Depending on the private lender, you might be allowed to consolidate both private and federal student loans into one new student loan.

How to Apply:

Most lenders require you to complete a 15 minute of less online application. The application is used to verify identity, education, income, and creditworthiness.

What to Expect:

To get approved, most banks require borrowers to have:

  • Minimum of 740 FICO (credit score)
  • Maximum Debt-To-Income ratio of 45%. Also
  • Stable Income
  • Employment History
  • Completed Degree Certificate

*The exact credit writing procedures vary by lender, so if you are curious we recommend contacting the lender directly.

Most lenders will notify if you have been approved or not approved within one week of submitting your application.

If approved, your new loan is typically disbursed within 30-45 days of the original application.

If not approved, you will receive an adverse action notice from the lender explaining why you weren’t approved.

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