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    Student Loan Consolidation: Private and Federal Consolidation 


    Student loans are a fact of life for most Americans who are seeking to get a university education. The rising costs of academia mean that most regular people have to take out one, or in most cases, many student loans that won’t be due until they’re done with college.

    Even so, multiple loans mean multiple monthly payments, so many people are turning to student loan debt consolidation to help them stabilize their finances and reduce their overall debt. 

    What is Student Loan Consolidation? 

    Student loan consolidation refers to taking multiple outstanding loans and bundling them into one by taking out new debt to pay them off.

    Consolidation is a term reserved for Federal student loans, and it is available for loans taken from government-funded programs and as part of different repayment tracks.

    When it comes to private loans, we refer to student loan refinancing (which covers both private and federal loans). 

    Which Loans Can Be Consolidated? 

    As we mentioned above, there are ways to refinance both private and federal student loans, but they involve different processes.

    Student loan debt consolidation involves federal loans exclusively and covers a wide range of Federal programs available.

    Here are some of the common student loans you can consolidate: 

    • Subsidized Federal Stafford Loans – These loans subsidize the interest of your loan during your time in school, so you only have to pay the principal (plus any new interest) once you’ve graduated. They’re available to students who can prove financial hardship and offer low fixed rates.
    • Unsubsidized Federal Stafford Loans – These loans are not subsidized and are not need-based. Any undergraduate student can apply for them to receive financing. The main difference is that interest continues to accrue while you’re in school.
    • PLUS Loans – PLUS loans are meant exclusively for graduate students and the parents of undergraduate students looking for financing. They’re available for those students who have exhausted their eligibility for a Federal Stafford loan.
    • Federal Perkins Loans – Although the Perkins Loans program has stopped extending new loans, those who are still paying existing loans are eligible for federal student loan consolidation. Perkins loans are low-interest financing options for students who show exceptional financial hardship. The program has not issued new loans since 2017.
    • Health Profession Loans – This is a broader category, and includes Nursing student loans, Nurse Faculty loans, health education assistance loans, and health professions student loans. These loans are available to medical students and nursing students who qualify for a range of criteria.
    • Loans for Disadvantaged Students – These programs include financial aid for students who apply to medical degrees and come from disadvantaged backgrounds. The loan program offers low-interest rates and friendlier grace periods.

    It’s worth noting that if you’re looking for student loan consolidation, you will not be able to include any private loans you’ve taken out in the process. You can refinance your federal student loans along with private financing, but you’ll lose access to the many Federal loan repayment and forgiveness programs offered.

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    How Does Student Loan Consolidation Work? 

    Much like refinancing traditional loans, student loan consolidation lets you repackage your outstanding debt into a single loan that you pay off every month. There are several benefits to this, with the main one being that you can more easily plan your budget if you’re only making one payment.

    However, student loan consolidation rates are not always lower. Instead, they’re calculated based on your existing rates.

    Before you sign on a consolidation loan, however, it’s worth learning a little more about how they work and what your options are. 

    Federal Student Loan Consolidation 

    Federal student loans can be consolidated through the government itself, which offers various programs for students and graduates alike. This process doesn’t lower your interest rate—your new rate is calculated based on the average of interests from your existing loans.

    To apply for federal student loan consolidation, you must:

    • Decide which loans you do want to consolidate. 
    • Choose the repayment plan that best fits your budget and income, or one based on your loan balance repayment timeline. 
    • Read the fine print to fully comprehend what your new loan entails.

    Private Student Loan Consolidation (Refinancing) 

    If you have both private and federal student loans, you can still bundle them into a single loan, although you’ll have to give up the benefits attached to your federal debt.

    Private student loan refinancing works by repaying your existing debt through a new private loan, which you then pay directly to the institution that extended it.

    To apply for private student loan refinancing: 

    • Check your credit score and make sure you can improve your current terms. 
    • Choose which loans you want to consolidate and if you want to include federal loans. 
    • Compare lender options and find ones that offer the most favorable rates. 
    • Read the fine print and understand the fees and terms attached to your new loan. 
    • Make steady monthly payments. 

    >> For more information about private student loans refinancing click here

    Why Should you Consolidate your Student Loans? 

    There are several benefits to consolidating your federal student loans, as well as factors you should consider when making your decision. It’s worth understanding the drawbacks as well when deciding:


    • You can manage your debt more easily when you’re making a single payment instead of two or five. 
    • You can choose the loan servicer you prefer for your federal loan, so you can work with student loan consolidation companies you trust. 
    • There’s a chance you could reduce your monthly payment if you opt for a longer repayment term. 
    • If your finances right now aren’t where you want them to be, consolidation lets you extend your repayment term to give you some breathing room
    • They can help you remain eligible and apply for loan forgiveness and loan repayment programs down the line. 


    • Although you may improve your monthly payments and repayment terms, student loan consolidation rates aren’t lower. Instead, they are the weighted average of the interest rates from your existing loans. 
    • Longer repayment terms lower monthly payments, but they mean you might pay more in interest over your loan’s lifetime. 
    • If you refinance your loans, you’ll lose access to any federal benefits to which you may have been entitled. 
    • You can only apply for federal loan consolidation once, so you will be locked with whatever terms you’re given. 

    Applying for a Consolidation Loan, Step by Step

    Depending on what type of consolidation (federal or private) you’re seeking, you’ll have to complete a few small steps to apply for your new loan.

    However, there are some things you should be generally aware of in either case. 

    • Examine your finances
    • Compare the options 
    • Debt to consolidate
    • Application
    • Agree and Pay 

    Examine your finances

    Before choosing federal or private consolidation (or refinancing), it’s important to know whether your financial status would help you improve your current terms. Private lenders who offer consolidation look at a few factors, including your credit score and your debt-to-income ratio (how much of your monthly income goes to paying off debt).

    The former should be at a minimum of 650 but should ideally be above 700. Your debt-to-income should never be higher than 40%. 

    Compare your options

    Depending on your finances and credit, you may be better off with a federal consolidation loan, which won’t lower your interest but may alleviate some financial strain in the short term.

    On the other hand, if your finances are in a good place, you may benefit from finding lower interest rates and better terms with private loan refinancing. 

    Choose which debt you want to consolidate

    There may be a situation where you may benefit from not consolidating all your loans. For instance, if you’ve taken out a federal loan but don’t want to lose the benefit of possible loan forgiveness or repayment plans, it may be worth to exclude.

    Similarly, a higher interest federal loan may affect the rate you receive for your consolidation loan. 

    Begin the application process

    Either way, you choose, you can complete your application (or at least start the process) online. You can apply for Federal student loan consolidation through the government’s portal.

    If you’re applying for a private loan, you can usually do so directly from their websites. 

    Agree to your new terms, and start paying

    Finally, once you’re approved, you’ll have a chance to review your terms before signing on the dotted line. Make sure to read the fine print and understand what each option means (especially when it comes to fees and late penalties, as well as hardship assistance).

    Then, make sure to keep up consistently with your loan payments. 

    Repayment Plans

    If you’ve taken out Federal student loans, you are eligible for several repayment programs funded and backed by the government.

    These plans offer different ways to repay your loan in a more sustainable fashion (such as tying your repayment to a fixed percentage of your monthly income, slowly scaling your monthly payments, and more), but are only available as long as you’re still paying your loans to the Federal government.  

    Choosing Federal loan consolidation can help you further by letting you set up one of these repayment plans and have a more manageable monthly payment. 

    What are Joint Consolidation Loans? 

    If you’re married, you and your spouse’s finances become tied together, so it would make sense to consolidate your debt as well. Unfortunately, the US government does not offer a program for joint student loan consolidation.

    The US Department of Education did, from 1993 to 2006, but the option is no longer available for federal student loans. Even so, you can still find joint consolidation loans, though you’ll have to go the private route. 

    Spousal student loan consolidation lets you combine your existing debt and consolidate it into a single loan with both your spouse’s and your name on it. It’s worth remembering that while you can refinance your federal loans this way, you’ll still lose the benefits tied to them.

    If both you and your spouse have strong finances and high credit scores, this may be a great way to continue trimming down your family’s debt.

    Moreover, if you or your spouse have existing loans with high-interest rates, it may be worth it to reduce your long-term financial hit. 

    Still, it’s worth remembering that even if you and your spouse separate, you’ll both still be responsible for the loan. 

    Student Loan Consolidation or Student Loan Forgiveness

    If you’ve received federal student loans, you’re eligible for a series of programs that range from consolidation all the way to loan forgiveness. It’s important to understand the difference between the two, as one may help you with the other.

    Below is a breakdown of their differences 

    • Debt Removal – Federal student loan consolidation does not eliminate any of your debt; it simply restructures it into a single loan you pay monthly. Loan forgiveness, on the other hand, is a long-term process that removes your debt completely once you meet the criteria for eligibility. 
    • Term – A consolidation program will extend your repayment term and will sometimes put you in a range of loan forgiveness. With most loan forgiveness programs ranging from 10 to 20 years of on-time payments, consolidating your loans and taking a longer repayment term may contribute to your eligibility. 
    • Qualifying – Consolidating your loans makes you eligible for loan forgiveness, cancellation, and repayment programs in some cases. For instance, consolidating your Perkins and FFEL Program loans into a Direct Loan makes you eligible for Public Service Loan Forgiveness. 

    FAQs for Federal and Private Student Loan Consolidation

    Can I consolidate a loan I’ve already consolidated before? 

    If you’ve already used Federal loan consolidation before, you’ll need to add an additional eligible loan to take advantage of the program again. On the other hand, you can refinance your existing loans through a private lender more than once, and in some cases, it may be beneficial if you can secure lower interest rates. 

    Do consolidation loans hurt your credit score? 

    There may be an initial hit to your score following a hard inquiry into your credit, and a new account may lower your average account age, also hurting your overall credit. However, that impact depends on each person’s individual history and finances.

    On the other hand, making consistent payments on time can actually boost your score. 

    What happens to my interest rate once I consolidate my loans? 

    If you’ve applied for a federal loan, your new interest rate will be the weighted average of your existing loans’ rates. If you’re using private loan refinancing, your new interest rate will depend on a variety of factors, including your credit score, debt-to-income ratio, and overall financial health. 

    Will Federal consolidation change my repayment options? 

    When you apply for federal loan consolidation, you gain access to a variety of loan repayment programs that can help you better manage your finances.

    This includes income-driven repayment, which pegs your monthly payments to a percentage of your income, graduated plans which slowly increase your monthly payments, and pay-as-you-earn, which keeps your monthly payments flexible. 

    When can I start repaying my consolidated loan? 

    Unlike student loans, which give you an extended grace period, the first payment on your new consolidated loan is 50 days after your loan is disbursed. Similarly, private consolidation loans are due shortly after you are approved, and funds are disbursed. 

    What happens to my grace period? 

    If you’ve refinanced your loans privately, your grace periods on existing loans will be erased as those loans are technically paid off. For Federal loans, you have the option of specifying whether you would like to delay the consolidation until closer to the end of your existing grace period.

    This way, you won’t receive the funds until you’re ready, and you will have a breathing room. 

    Can I take advantage of income-driven repayment and forgiveness plans if I consolidate my loan?

    If you’ve gone the Federal route, then you certainly can. Both of those programs are directed at individuals seeking to stabilize their finances, and consolidation makes you eligible. Private loans preclude you from these programs, as your servicer becomes the lender you refinanced with. 

    Where can I learn more about consolidation before applying? 

    The Federal government has excellent resources that you can take advantage of, and which offer extensive information. You can visit to learn more about the available programs, and how consolidation affects you. 

    When can I consolidate my loans into a private loan? 

    Technically, at any time once you qualify for a refinancing loan. It’s worth remembering that refinancing your loan eliminates many of the benefits student loans offer and will require that you start paying them immediately. Additionally, you should consider refinancing if you’re sure it will improve your loan terms. 

    If I’m struggling to pay my private loans, are there any other ways to take advantage of forgiveness programs? 

    While you won’t be able to apply for any Federal programs once you’ve refinanced your loans privately, you may still be able to alleviate the stress a little.

    Some lenders offer hardship and forbearance programs, where you can delay the payment of your loans for a few months. It’s important to note, however, that your loan is still accruing interest during this period.