How To Consolidate Student Loans: Guide for Borrowers

There were 9.5 million borrowers with Direct Consolidation Loans at the end of 2024. While the term “consolidation” is often used interchangeably with “refinancing,” the two are distinct processes.

We'll explain the differences between loan consolidation and refinancing and then walk you through the processes — as well as the benefits and drawbacks — for each.

What is student loan consolidation?

Student loan consolidation is the process of combining one or more federal student loans into a single Direct Consolidation Loan. This new loan will have a fixed interest rate that's the weighted average of the loans being consolidated, rounded up to the nearest one-eighth of a percent.

Loan consolidation can open up access to income-driven repayment plans and loan forgiveness options and offer lower monthly payments through enrollment in an income-driven repayment plan or the choice of a longer loan term.

While consolidation does confer the same benefit of rolling up multiple loans into a new loan with just one monthly payment to track, it's not to be confused with student loan refinancing, which is a separate process. Consolidation applies only to federal loans; refinancing can apply to both federal and private loans.

Federal student loan consolidation

Federal loan consolidation is only offered through the Department of Education. You're able to consolidate most types of federal student loans, including Direct Loans and some FFEL program loans. One loan exception is parent PLUS loans, which can't be consolidated with federal loans that the student received. You can even consolidate defaulted loans if you follow a few steps.

You can typically apply for federal loan consolidation any time after you graduate or leave school, or if your enrollment drops below half-time. Your loans must be either in repayment or in a grace period for consolidation to be possible.

Once you consolidate, the loans you've chosen to include are rolled up into a new Direct Consolidation Loan. You'll then start to make payments on that new loan within 60 days of the loan funds being paid out. Unlike before, where you had to track different due dates for each of your loans, you'll now make monthly payments on a single loan.

The Direct Consolidation Loan will have a different interest rate, which will be the weighted average of the loans you've consolidated, rounded up to the nearest one-eighth of a percent.

It may also have different repayment terms, as you can select a new repayment plan when you consolidate, including additional income-driven repayment plan options that can lower your monthly payments. You may gain access to Public Service Loan Forgiveness (PSLF) through consolidation as well, which can eliminate your remaining loan balance after you make 120 qualifying payments.

Private student loan consolidation

Private student loan consolidation is known as refinancing. Unlike federal student loan consolidation, which is only available for federal student loans, refinancing is an option for both federal and private student loans. With refinancing, you combine these loans through a private lender — such as a bank, credit union, or online lender — into one new loan that has its own interest rate and terms.

While federal consolidation can't lower your interest rate, private consolidation can. The rate you receive when you consolidate through a private lender is based on your credit and other financial factors, as opposed to being a weighted average of the loans you're consolidating. This interest rate can be either fixed or variable.

Alongside potentially lowering your interest rate, private student loan consolidation can allow you to secure lower payments by choosing a longer loan term. Refinancing can also allow you to release a cosigner from an existing loan.

Since refinancing is available through private lenders, you'll have many options. This makes it especially important to compare lenders and see which one may offer you the best rate, eligibility terms, and other offerings that align with your needs.

Each lender will have its own eligibility criteria, but you'll usually need to have a credit score of 670 or higher, a steady income, and a debt-to-income ratio (DTI) under a certain threshold. Lenders may also require you to have graduated to be eligible, and you'll generally need to meet a minimum loan amount to refinance.

Current student loan refinance rates

Benefits of consolidating student loans

There are upsides to both federal and private student loan consolidation, including:

• Simplified monthly payments: A benefit of both private and federal student loan consolidation is the simplification of monthly payments. By bundling multiple loans into one new loan, you'll have just one monthly due date and payment to keep track of.
• Potential for lower monthly payments: Loan consolidation can also allow you to secure lower monthly payments by opting for a longer loan term. Plus, with private loan consolidation, you may be able to secure a lower interest rate on your loans, which could also cut the amount you'll pay.
• Access to income-driven repayment plans and loan forgiveness: Federal student loan consolidation can help you access additional repayment plan options, as well as loan forgiveness. “If you have older federal loans, called FFEL loans, then consolidating them can make them eligible for better income-driven repayment plans,” says Connor Pierce, certified student loan professional and a financial planner at SLP Wealth. “Another reason to consolidate is if you have loans with different repayment counts, then consolidating those loans together [gives] you a weighted average of your payment count going for forgiveness.”

Drawbacks of consolidating student loans

There are also potential drawbacks to be aware of before moving forward with student loan consolidation:

• Loss of certain federal loan benefits: While refinancing federal student loans through a private lender guarantees a loss of federal benefits and protections, you can also miss out on perks through federal loan consolidation. That's because when you consolidate, “all your loan payment histories will be weighted and averaged,” says Rosario Chacón, a certified financial planner and founder of Wealth-Source Financial. “If you were planning to get forgiveness soon on your older loans, mixing them with the new ones will decelerate forgiveness.” 
• Extending repayment terms can drive up your loan cost: While selecting a longer loan term can offer the upside of lower monthly payments, you'll end up paying more in interest overall.
• Capitalization of unpaid interest: Your loan's principal balance may go up with federal consolidation due to interest capitalization. “When you consolidate, principal and interest will merge, making them the new principal of your new loan. Now the new interest will be based on the new principal, therefore making it more expensive in the long run,” says Chacón.

Steps to consolidate federal student loans

If you decide to move forward with federal loan consolidation, you can apply online through StudentAid.gov or by mail. You can expect the application process to take about 30 minutes, and you'll need to have documents and details on hand, including:

• A verified Federal Student Aid (FSA) ID
• Your phone number, mailing address, and email address
• Social Security number
• Recent statement(s) for the loans you're consolidating

Application processing will take about six weeks. Around two weeks before the new consolidation loan is disbursed, you'll receive a loan summary statement detailing the new interest rate and repayment details.

Steps to refinance private student loans

If you've decided student loan refinancing is a better solution for you, then your application process will start with researching and comparing different private lenders. Make sure to take note of eligibility requirements, and compare the rates and fees involved.

The application process and what's necessary to complete it will vary a bit from lender to lender, unlike the standardized process for federal student loan consolidation. However, you'll generally need to apply online and submit to a credit check.

Check Out: Best Student Loan Refinance Companies