How Do You Consolidate Student Loans

Last Updated on May 19, 2022

If you’re a student, you may have a lot of questions about how to consolidate your student loans. You’re not alone—students are one of the most common groups of borrowers when it comes to consolidating their loans. It’s an easy process if you know what you’re doing.

In this guide we’ll cover:

Why should I consolidate my student loans?

How do I consolidate my student loans?

What are the benefits of consolidating my student loans?

Should I Consolidate My Student Loans? | RamseySolutions.com

How Do You Consolidate Student Loans

If you have multiple student loans you may be able to combine them into one loan with a fixed interest rate based on the average of the interest rates on the loans being consolidated. Learn more about loan consolidation.

A Direct Consolidation Loan allows you to consolidate multiple federal education loans into one loan at no cost to you.

Through your completion of the free Federal Direct Consolidation Loan Application and Promissory Note, you will confirm the loans that you want to consolidate and agree to repay the new Direct Consolidation Loan.

Once the consolidation is complete, you will have a single monthly payment on the new Direct Consolidation Loan instead of multiple monthly payments on the loans you consolidated.

A Direct Consolidation Loan allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments. Loan consolidation can also give you access to additional loan repayment plans and forgiveness programs.

Should I consolidate my loans?
The answer depends on your individual circumstances.

Pros

If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with just one monthly bill.

Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans.

If you consolidate loans other than Direct Loans, consolidation may give you access to additional income-driven repayment plan options and Public Service Loan Forgiveness (PSLF). (Direct Loans are from the William D. Ford Federal Direct Loan Program.)

You’ll be able to switch any variable-rate loans you have to a fixed interest rate.

Cons

Because consolidation usually increases the period of time you have to repay your loans, you will likely make more payments and pay more in interest than would be the case if you didn’t consolidate.

When you consolidate your loans, any outstanding interest on the loans that you consolidate becomes part of the original principal balance on your consolidation loan, which means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated.

Consolidation may also cause you to lose certain borrower benefits—such as interest rate discounts, principal rebates, or some loan cancellation benefits—that are associated with your current loans.

If you’re paying your current loans under an income-driven repayment plan, consolidating those loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness.

If consolidation would cause you to lose the benefits associated with some of your current loans and you are working toward earning those benefits, you should not include those loans in your new Direct Consolidation Loan. When you apply for a Direct Consolidation Loan, you don’t have to consolidate all of your eligible loans.

For example, if you have Federal Perkins Loans and you are employed in an occupation that would qualify you for Perkins Loan cancellation benefits, you may not want to include your Perkins Loans when you consolidate. Leaving out your Perkins Loans will preserve the benefits on those loans.

If you want to lower your monthly payment amount but are concerned about the impact of loan consolidation, you might want to consider deferment or forbearance as options for short-term payment relief, or consider switching to an income-driven repayment plan for longer-term payment relief.

Once your loans are combined into a Direct Consolidation Loan, they cannot be removed. The loans that were consolidated are paid off and no longer exist.

consolidate federal student loans

Federal loan consolidation doesn’t have a credit requirement, and it offers the benefit of a single loan bill and potentially lower payments. But it’s only for federal loans, and it won’t cut your interest rate. Consider federal consolidation if you:

Need to consolidate to be eligible for income-driven repayment or public service loan forgiveness. This is the case if you have Federal Family Education, Perkins or parent PLUS loans.

Want a single federal loan payment, but don’t need it to be drastically lower.

Are in student loan default and want to get back on track.

When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan. You’re generally eligible once you graduate, leave school or drop below half-time enrollment. Consolidating your federal loans through the Department of Education is free; steer clear of companies that charge fees to consolidate them for you.

When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next ⅛ of 1%. So, for instance: If the average comes to 6.15%, your new interest rate will be 6.25%.

Additionally, you’ll get a new loan term ranging from 10 to 30 years. Your repayment term will generally start within 60 days of when your consolidation loan is first disbursed and will be based on your total federal student loan balance, among other factors.

How to consolidate federal loans
Log in to studentloans.gov and click on “Complete Consolidation Loan Application and Promissory Note.” You’ll need to finish the application in one session, so gather the documents listed in the “What do I need?” section before you start and set aside about 30 minutes to fill it out.

  1. Enter which loans you do — and do not — want to consolidate.
  2. Choose a repayment plan. You can either get a repayment timeline based on your loan balance or pick one that ties payments to income. If you pick an income-driven plan, you’ll fill out an Income-Driven Repayment Plan Request form next.
  3. Read the terms before submitting the form online. Continue making student loan payments as usual until your servicer confirms consolidation is complete.

If your loans are in default, consolidation is one of a few methods to get your loans back on track. To consolidate defaulted loans you’ll need to make three full, on-time consecutive monthly payments on the defaulted loan and agree to enroll in an income-driven repayment plan.

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