If you want to make just one monthly payment for all your student loans, consider consolidating them. When you apply for student loan consolidation, multiple loans are combined into a single loan. In order to give you a simple single monthly payment, student loan consolidation may also allow you to extend your repayment period, access additional repayment plans, and switch all your loans to a fixed interest rate.
Find out which loans are eligible for consolidation, and get the information you need to decide whether it’s a good idea for you to consolidate your loans.
Which Student Loans Can be Consolidated?
Most types of federal student loans can be consolidated, including:
- Direct Loans (Subsidized or Unsubsidized).
- Direct PLUS Loans.
- PLUS loans from the FFEL Program.
- Federal Stafford Loans (Subsidized or Unsubsidized).
- Federal Perkins Loans.
- Loans for Disadvantaged Students.
- Supplemental Loans for Students.
- Health Education Assistance Loans.
- Health Professions Student Loans.
- Nursing Student Loans.
- Nurse Faculty Loans.
Direct PLUS loans received by a parent to help pay for a student’s education can’t be consolidated with loans received by the student. You may be able to consolidate your FFEL Consolidation Loans and Direct Consolidation Loans with other eligible loans not included in the pre-existing consolidation.
One of the most important things to keep in mind with student loan consolidation is that you can only consolidate federal loans with other federal loans. If you have private student loans, you may be able to consolidate those into a single loan, but that will result in a separate monthly payment from your federal student loan payment. Private student loan consolidation typically takes place through a third-party vendor, such as a bank or a lending institution.
There are certain requirements that must be met before a borrower can be considered for federal student loan consolidation, including:
- You must have already graduated, left school, or dropped below half-time enrollment.
- Your loans must be already in repayment or in the grace period.
- You must consolidate at least one FFEL Program Loan or Direct Loan.
- You must agree to certain repayment arrangements for any defaulted loans.
For private loans, consolidation eligibility is often based on credit score, with a higher score allowing you the chance to potentially consolidate your private student loans at a lower interest rate.
Benefits of Student Loans Consolidation
One of the greatest benefits of consolidating your loans is that you receive just one monthly bill to cover all the loans that have been consolidated. This is especially helpful for borrowers who have multiple loan servicers requiring them to make separate payments for each loan.
With a single monthly payment, taking care of loans is easier and more straightforward, and borrowers are less likely to accidentally miss a payment.
Another important benefit of student loan consolidation is lowering your total monthly payment. The new consolidated loan may have a longer repayment period, which means your bill each month will be a little lower than the total of all your individual loan bills before consolidation.
In addition, you may gain access to some income-driven repayment plan options for loans that did not previously qualify. If that’s the case, the monthly payment may be even lower because it will be based on your gross monthly income and family size.
Finally, there’s the interest rate to consider. For many borrowers, consolidating their loans means that one or more loans with a variable interest rate will now have a single fixed interest rate. This allows you to lock in a reasonable interest rate for the entire life of the loan.
Drawbacks of Student Loans Consolidation
While there are certainly some significant benefits to student loan consolidation, there are some potential drawbacks that are just as important to consider. First, you’ll want to think about whether you’re interested in extending the repayment period for your loans.
A longer repayment period allows for lower monthly payments, but it also means your debt will be around for many more years. In fact, your repayment period can be set for up to 30 years, so if you’re currently on a standard 10-year repayment plan, that can have a major impact on your long-term financial goals.
Second, student loan consolidation can also affect which borrower benefits you may receive. For example, interest rate discounts and principal rebates are generally not available to borrowers who have consolidated. In addition, you may not be able to take advantage of certain loan cancellation options if you’ve consolidated your federal loans.
Finally, there’s the issue of student loan forgiveness. Generally, consolidating your student loans will cause you to lose credit for payments made as part of the Public Service Loan Forgiveness Program or income-driven repayment plan forgiveness program. If you are trying to make qualifying payments toward these programs, you may not want to consolidate.
Alternatives to Loan Consolidation
If you’re looking into federal student loan consolidation due to financial hardship, be sure to investigate all your options before you apply. You might find that one of the following federal programs is a better fit for your needs:
- Deferment or forbearance: These options allow you to stop making monthly payments on a temporary basis.
- Graduated repayment plan: This offers lower payments at first, with gradual increases about once every two years.
- Extended repayment plan: This extends the repayment period for up to 25 years.
- Income-based repayment plan: With this plan, payments are calculated based on a percentage of your income and family size.
Consolidating your loans actually means the original loans are paid off and the balances are combined into a new single loan. The original loans will no longer exist; essentially, you won’t be able to un-consolidate your loans.
Applying for Student Loan Consolidation
If you decide that federal student loan consolidation is the right choice for you, and you meet the criteria for eligibility, you can apply electronically through StudentLoans.gov or submit a paper application. A consolidation service will handle the consolidation and let you know once your loans have been successfully consolidated. While waiting for the consolidation to be finalized, continue making regular monthly payments on all of your loans.