What is Student Loan Consolidation, and How Do I Apply?

3 Benefits to Consolidation2 Downsides to Student Loan ConsolidationEligible Loans to ConsolidateDoes it cost to consolidate student loans?How to consolidate student loansHow long does a student loan consolidation take?Consolidating student loans more than onceAverage interest rate on consolidated student loansConsolidation and your credit scoreWhat credit score do I need to consolidate student loans?RefinancingRefinancingTaking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF. federal into privateCan you consolidate federal student loans with private loans?Should I refinance my federal student loans with a private loan?Pros & cons to refinancing federal loans with a private lenderCan I refinance my student loan after consolidation?Ready to rethink your student loans? Call me.

Student loan consolidation allows you to combine multiple federal student loans into a new Federal Direct ConsolidationFederal Direct ConsolidationThe combining of one or more federal student loans into a single new Direct Consolidation Loan. Consolidation can restore defaulted loans to good standing, change the servicer, and open access to certain repayment plans and forgiveness programs. Loan. (Private loans can only be refinanced, not consolidated.)

Consolidating a loan allows you to:

• Choose a new loan servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education.
• Qualify for income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. plans
• Streamline your debt to a single monthly payment
• Stretch your loan repayment period up to a 30-year term
• Maintain or obtain eligibility for federal student loan forgiveness programs

Let’s talk about what student loan consolidation means for you and answer the FAQs I hear as a student loan lawyer. If you still have questions, you may want to talk to an expert who can give you personalized legal advice.

3 Benefits to Consolidation

What are the benefits of student loan consolidation? The benefits of student loan consolidation are:

• qualify for loan forgiveness programs
• lower monthly payments
• get out of defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports.

Benefit 1: Qualify for Loan Forgiveness Programs

Only Direct Loans qualify for the Public Service Loan Forgiveness Program. Loans made under the Federal Family Education Loan ProgramFederal Family Education Loan Program (FFELP)The federal program that guaranteed student loans made by private lenders through 2010. Loans issued under this program are commonly called FFELP loans and are still held by millions of borrowers. (FFEL) and Federal Perkins LoanPerkins LoanA low-interest federal student loan for borrowers with exceptional financial need, issued by schools under a now-discontinued program. New Perkins Loans have not been made since 2017, but many existing balances are still in repayment. Program do not meet the eligibility requirements for the PSLFPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer. Program.

However, you can make them eligible by consolidating them into a Direct Consolidation Loan.

Can my student loans be forgiven if I consolidate? Yes, your federal student loans can be forgiven if you consolidate them. In fact, some of your student loans can only be forgiven if you consolidate.

Benefit 2: Lower Monthly Payments

Most Direct Consolidation Loans are eligible for enrollment in all income-driven repayment plans (IDR plans), such as:

• Pay As You EarnPay As You Earn (PAYE)A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007. (PAYE)
• Revised Pay As You Earn (REPAYE)
• Income-Based RepaymentIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. (IBR)
• Income-Contingent RepaymentIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. (ICR)

IDR plans can lower your monthly student loan payments by factoring in your income and family size.

The exception: Consolidation loans that include a Parent Plus loanParent PLUS LoanA federal Direct PLUS Loan taken out by the biological, adoptive, or stepparent of a dependent undergraduate student. The parent is legally responsible for repayment, not the student. are, however, ineligible for the REPAYERevised Pay As You Earn (REPAYE)A former federal income-driven repayment plan that capped payments at 10% of discretionary income, with forgiveness after 20 or 25 years. REPAYE was replaced by the SAVE Plan in 2023. Plan. Those types of consolidation loans are eligible only for the income-contingent repayment plan, which could bottom out at a $0 monthly payment for large, low-income families.

Benefit 3: Get Out of Default

Consolidation gets your defaulted student loan debt out of default in about 2-3 months. The new consolidation loan pays off the principal, interest, and collection fees owed on the loans included in the consolidation.

There’s no way to get the collection fees waived if you consolidate.

If you’re interested in waiving your collection fees, check out federal student loan settlements or the loan rehabilitationRehabilitationA federal program for borrowers in default that requires nine voluntary, on-time monthly payments over ten months. After rehabilitation, the default is removed from credit reports and federal aid eligibility is restored. It is available once per loan. program.

2 Downsides to Student Loan Consolidation

However, student loan consolidation isn’t suitable for everyone. Here are what I see as the primary downsides to student loan consolidation:

• more interest paid in the long-term
• lost credit towards loan forgiveness

While you can consolidate to lower your monthly payments, don’t consolidate your federal student loans to get a lower fixed-rate loan. Federal student loan consolidation does not give you a lower interest rate.

Downside 1: More Interest Paid in the Long Term

The main downside to consolidating federal student loans is that you likely pay more interest over the long run. You’ll pay more overall for 3 reasons:

1. Consolidation extends your loan term. The longer the loan repayment term, the more interest you’ll pay over time.
2. Any outstanding interest on the loans that you consolidate becomes part of your consolidation loan’s original principal loan balance. As a result, interest will accrue on a higher principal loan balance than if you had not consolidated.
3. Your consolidation loan will feature a weighted average interest rate, rounded up to the nearest one-eighth of a percent. This rounded-up average may only cost you a couple hundred dollars, depending on your loan amount, but it does increase your interest.

Downside 2: Lost Credit Towards Loan Forgiveness

You don’t need to include all of your eligible loans in your loan consolidation. For example, if you’ve earned credit towards loan forgiveness on two loans, consider leaving those loans out of your consolidation application.

Eligible Loans to Consolidate

Which student loans are eligible for consolidation? Most federal student loans are eligible for consolidation:

• Federal Stafford Loans (Unsubsidized and Subsidized)
• Parent Loans for Undergraduate Students
• Federal Family Education Loan (FFEL) Program Loans
• FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
• Federal Perkins Loans
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans (Parent Plus and Graduate Plus)
• Federal Insured Student Loans
• Guaranteed Student Loans
• National Direct Student Loans
• National Defense Student Loans
• Nursing Student Loans
• Nurse Faculty Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Supplemental Loans for Students
• Auxiliary Loans to Assist Students

Private loans are ineligible for student loan consolidation. (That would be a situation for refinancing, discussed later in this post.)

Does it cost to consolidate student loans?

No, it does not cost money to consolidate federal student loans. There are no loan origination fees for consolidation loans or the application process. The federal government lets borrowers consolidate federal education loans for free at studentaid.gov.

You can also submit a paper loan application to a loan servicer of your choosing.

The following PDFs can be completed online or printed out and completed by pen:

• Federal Direct Consolidation Loan Application
• Request to Add More Loans to Consolidation

Beware: Predatory companies promise to help you consolidate your loans and get the best rate possible for an upfront fee. Never accept help from a company asking for payment to help you consolidate your student loans.

How to consolidate student loans

The process of applying for student loan consolidation is actually reasonably straightforward. Just follow these steps:

1. Begin consolidating federal student loans for free by heading to studentaid.gov.
2. Use your Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. ID to log in.
3. To apply online, click Manage Loans>Consolidate My Loans>Start. (See screengrab below.) You can also submit a paper application to a loan servicer of your choosing by mail or fax. Student loan borrowers whose loans are in default may use the collection agency that has their loans to start the consolidation process.

The Department of Education does not charge federal student loan borrowers an application fee for loan consolidation. You should be able to apply for $0.

How long does a student loan consolidation take?

The student loan consolidation process typically takes 30-60 days from start to finish. Consolidation can finish quicker if you waive the 10 business day waiting period after receiving your Loan Summary Statement.

It usually takes longer if you don’t respond to requests from your student loan servicer. The main reason I see consolidations take longer is due to missing income information.

To avoid delays, contact the loan servicer a few days after submitting your consolidation application to confirm they’ve received all necessary documents.

Consolidating student loans more than once

How many times can you consolidate student loans? You can consolidate student loans more than once if you have another federal student loan to consolidate it with.

You can consolidate student loans more than once in these unique situations:

• you can consolidate an FFEL Consolidation Loan by itself into a Direct Consolidation Loan
• you can consolidate an FFEL Consolidation with another federal student loan into a new Direct Consolidation Loan
• you can consolidate a Direct Consolidation Loan with another federal student loan into a new Direct Consolidation Loan

While you can consolidate an FFEL Consolidation Loan by itself, you cannot consolidate a Direct Consolidation Loan by itself. You have to have another loan to combine the Direct loanDirect LoanA federal student loan made directly by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. Most federal student loans issued since 2010 are Direct Loans. with.

Average interest rate on consolidated student loans

The interest rate on consolidated student loans is the weighted average of the interest rates of the loans included in the consolidation, rounded up to the next one-eighth of one percentage point. Loans with larger balances factor more significantly into your overall interest rate.

Do not consolidate your student loans simply to get a better interest rate — that won’t happen. The upside is that you will get a fixed interest rate.

Your new Direct Consolidation Loan will have a fixed interest rateFixed Interest RateAn interest rate that stays the same for the life of a loan. Federal student loans carry fixed rates; some private student loans offer fixed or variable options. for the life of the loan. This may prevent any of your student loans’ variable interest rates from rising in the future.

Consolidation and your credit score

Consolidating your federal student loans shouldn’t hurt your credit score long-term. Unlike debt consolidation for credit cards, medical bills, etc., the U.S. Department of EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans. doesn’t check your credit history to approve your application.

Once your application is approved, your loan servicer will contact the credit bureaus to:

• Request the loans included in your consolidation be reported as “paid in full through consolidation”
• Add the new consolidation loan to your credit report as an installment loan

Some of my clients have reported a temporary drop in their credit scores during the Direct Loan Consolidation process. However, they said their score increased shortly after that.

Related: Does Student Loan Consolidation Affect Your Credit Score?

What credit score do I need to consolidate student loans?

You don’t need a specific credit score to consolidate federal student loans with the U.S. Department of Education. The Department of Education doesn’t run a credit check before it approves your loan application.

Refinancing your federal student loans with a private lender is different.

Private lenders require a good credit score (minimum credit score of 650-680) to approve student loan refinancing applications.

Also, depending on your credit score, you may need a cosignerCosignerA person who signs a loan agreement alongside the primary borrower and becomes equally responsible for repayment. Cosigners are common on private student loans when the student has limited credit or income history. for your private consolidation loan.

Refinancing federal into private

You can’t “consolidate” federal student loans into private loans. However, you can essentially do that same thing by refinancing your federal loans into private loans. It’s important to note that if you do this, you lose federal student loan benefits.

Refinance loans are private loans that pay off some or all of your student loans. Then you’ve got a single loan to pay off with a potentially lower interest rate.

You can refinance federal, private, or a combination of federal and private loans. You can only consolidate federal loans. Refinancing might offer you a better interest rate, while consolidation will essentially never lower your interest rate.

Here are a few trusted companies that can help you refinance your student loans:

• SoFi
• LendKey
• CommonBond
• SoFi
• LendKey
• CommonBond

Can you consolidate federal student loans with private loans?

You cannot use the Department of Education to consolidate federal student loans with private student loans. You cannot “transfer” private student loans to federal student loans.

You can, however, combine your federal student loans with your private student loans by refinancing with a private lender.

From here, there’s no reversing the process. It’s impossible to return a federal student loan you refinanced with a private lender back into a federal student loan. Federal loans typically come with more flexibility than private loans.

Should I refinance my federal student loans with a private loan?

You could consider refinancing your federal student loans with a private loan, but only if you have a stable, reliable income that allows you to aggressively pay towards your student loan debt.

Typically, borrowers refinance with a private lender to get a lower interest rate. That low interest rate is usually a variable interest rateVariable Interest RateAn interest rate that can change over the life of a loan, usually based on a market index. Variable rates often start lower than fixed rates but can rise or fall over time. that rises and drops.

Therefore, it may make sense to refinance if you can pay off your student loan debt before the variable interest rate increases drastically.

Pros & cons to refinancing federal loans with a private lender

Pros to refinancing federal student loans into private loans:

• You could get a lower interest rate. However, it’s often a variable rate, so it will almost certainly rise with time.
• You likely extend the loan term and monthly payments.
• You may be able to release a cosigner from the original loan.

Cons to refinancing federal student loans to private loans:

• You lose access to deferment and forbearance options.
• You lose eligibility for student loan repayment options based on your income.
• You lose eligibility for loan forgiveness programs like the Public Service Loan Forgiveness. You also become ineligible if the government forgives $10,000+ in federal student loan debt.
• You may lose eligibility to discharge student loan debt due to Total and Permanent Disability.
• You may have to pay loan origination fees.
• You may be required to provide a cosigner.

Can I refinance my student loan after consolidation?

Yes, you can refinance your student loan debt after you consolidate it. You will need to find a private lender willing to refinance your Direct Consolidation Loan.

Typically, you’ll need a good credit score (680+) and a solid income to qualify for a lower interest rate.

Important: Refinancing a federal student loan with a private lender causes you to lose certain benefits like student loan forgiveness, income-driven repayment, deferment opportunities, etc.

Ready to rethink your student loans? Call me.

Whether you’re consolidating your student loans or refinancing), it may be helpful to talk to an expert. Schedule a call with me. I’m a student loan lawyer with years of experience and dozens of success stories.