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Most college graduates leave school with a number of different student loans, racked up throughout their years of study. Each of these loans can come with different terms, payments, servicers and statements. The sheer amount of numbers and other information can be difficult to track.
If you feel overwhelmed with managing your student loan debt, don’t panic — you do have options. One way to make student loans easier to deal with is through federal and private student loan consolidation.
When you consolidate your debt, you combine all those loans into one. You do this by taking out a new loan for the amount of the balances of the existing loans, use the newly borrowed money to repay all the older debt, and then focus on repaying your one new loan.
This simplifies your financial situation and makes your debts easier to keep track of. Other benefits of consolidation could include securing more favorable interest rates (if you also refinance) and lower monthly payments (by extending your repayment term).
Federal and private student loan consolidation: What you need to know
Before you choose to consolidate your loans, examine your situation carefully to determine if this is the best course of action. This isn’t a solution that works well for everyone.
Consolidation doesn’t always result in a lower interest rate — even if you refinance — and lower monthly payments usually mean paying the loan over a longer period of time and spending more on interest.
You also need to know that the process is different for federal student loans and private student loans, especially if you’re trying to manage both kinds of loans. Private lenders may be able to consolidate both private and federal loans, but you cannot roll private loans into a new federal Direct Consolidation Loan.
And just because you can use refinancing to consolidate private student loans together with your federal loans doesn’t mean it’s a good idea either. Doing so eliminates any benefits or eligibility for federal repayment plans or loan forgiveness that you could have received from a federal program.
If you think you’ll need an income-driven repayment plan or want to pursue federal forgiveness options, it’s best not to mix federal and private loans.
Should I consolidate my federal student loans?
When you choose to consolidate your federal student loans, the government will combine all your separate debts into a single new loan, known as a Direct Consolidation Loan. You can apply once you graduate, otherwise leave school or become enrolled less than half-time; these events will trigger the start of your repayment.
Most federal student loans are eligible for consolidation, including subsidized and unsubsidized Direct loans, subsidized and unsubsidized federal Stafford loans, Direct PLUS loans and others. Although the Perkins loan program came to an end in September 2017, old Perkins loans are still eligible for consolidation, as well.
If you have a PLUS loan in the name of a parent, that loan cannot be transferred to the student during consolidation. Also, you can’t consolidate a defaulted loan until you make a repayment agreement with the loan’s servicer or agree to repay the new consolidated loan with one of the government’s eligible repayment plans.
Pros of consolidating federal student loans
- Direct Consolidation loans offer one single payment and potentially lower monthly payments.
- Consolidating federal loans is free via the federal government. Beware of companies which offer to help you consolidate federal student loans for a fee.
- No credit check is required to consolidate federal student loans, and you can apply online.
On the other hand, if you’re only interested in simplifying your situation, consider finding other ways of tracking your debt and managing repayment. That’s because Direct Consolidation Loans have drawbacks, too.
Cons of consolidating federal student loans
- A lower monthly payment means paying the loan over a longer period of time, which will cost you more money due to interest charges.
- When you consolidate your federal student loans, you lose the ability to strategically target your highest interest and/or highest balance loans using a method such as the debt avalanche or debt snowball.
- Federal consolidation doesn’t result in a better interest rate. Rather, the new rate is a weighted average of all the interest rates on your student loans, rounded up to the nearest one-eighth of a percentage point.
- Some federal consolidation loans may come with higher interest rates than private loans. For example, the average interest rate for Direct unsubsidized loans for graduate or professional students is 6.6%, while some student loan refinancing lenders offer rates below 3% if you qualify. That difference can really add up over time — you can check our refinancing calculator to see how much.
Be sure to explore all your options and weigh which benefits — those from Direct Consolidation loans or those from other strategies, such as refinancing — will help you the most.
Should I consolidate my private student loans?
While private student debt isn’t eligible for federal loan consolidation, you can still consolidate your private loans by refinancing with a private lender. Requirements and eligibility will vary from one financial institution to another.
Some private lenders may require you borrow a minimum amount. Some might use different criteria to evaluate your creditworthiness than others. It’s best to reach out to individual lenders to ask for their specific rules around eligibility. You can compare the results to determine what might be a good fit for you.
Some of the benefits and drawbacks of consolidating your private student loans are similar to those for consolidating federal loans:
Pros of consolidating private student loans
- You may benefit by creating an easier-to-manage financial situation, getting better terms or securing lower monthly payments.
- One big benefit of consolidating private student loans through refinancing is potentially securing a much lower interest rate. Your rate will be based on your creditworthiness or that of a cosigner.
- If your credit score has significantly improved from the time you took out your loans, or you have built a solid income and employment history, you’re more likely to get a low rate that could make refinancing a smart financial move.
Cons of consolidating private student loans
- When considering consolidation, keep in mind whether you’re also extending the repayment term. Again, with more payments comes more interest.
- While there’s no cost to originate a federal Direct Consolidation Loan, some private lenders will charge an origination fee.
- A credit check is required to consolidate private student loans via refinancing, which may be a downside, depending on your credit history.
Again, it’s important to evaluate all your options before making a decision.
Consolidation vs. refinancing
As you probably noticed, consolidating private student loans is generally done by refinancing. However, you don’t necessarily have to consolidate in order to refinance. You can cherry-pick just the loans that would save you money by refinancing, while leaving other debt (perhaps including your federal loans) as they are.
This might make more sense if you have fewer loans and just one has a very high interest rate. You can refinance to a lower rate and maintain the original benefits and rates on all your other loans.
Remember that the federal government will not refinance your loans — they only offer Direct Consolidation loans. Private lenders will refinance both federal and private student loans.
If you want to compare the immediate benefits of Direct Loan consolidation vs. private consolidation and refinancing for your situation, check out the calculator below:
Consolidation vs. Refinancing Calculator
Total interest paid
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Refinancing is the only way to lower your interest rate but you may lose some of the safeguards associated with having federal loans, so make sure you are fully educated on the decision by reading our recommended resources below:
Again, just like with consolidation, you may not want to refinance any federal loans because you’ll lose your eligibility for government-backed repayment plans. But if you don’t plan to use those programs and can financially benefit by refinancing to a lower interest rate, this may be a viable option for you.
Bottom line on federal and private student loan consolidation
While consolidating student loans may seem like an attractive option, there are many factors to consider in determining if it’s the right move for you. Make sure you ask the right questions and weigh all the pros and cons before deciding, so you can pay your student loans off as quickly and economically as possible.
Julie Evans contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 7.95%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|