Consolidating your student loans is one option if you’re juggling several monthly payments. But it’s not the right choice for everyone. If you’re thinking about your student loans, here’s how it works and what to know before moving forward.
What is student loan consolidation?
Student loan consolidation involves taking multiple existing student loan balances and consolidating them into one new loan. The result is a single, easy-to-manage monthly payment as opposed to several. Borrowers often consolidate their student loans if they have several loans from multiple servicers and they’re struggling to stay on top of payments.
USA TODAY Blueprint may earn a commission from this advertiser.
Ad
How to consolidate your student loans Step 1: Determine if you have private or federal loans
If you’ve decided consolidation is right for you, the first step is determining if you have private or federal student loans. There are some important differences between the two loan types that impact the consolidation processes, which we’ll discuss shortly.
You can determine if you have federal loans by logging into studentaid.Gov with your Federal Student Aid (FSA) ID, or by reviewing your loan documents for names of federal loan programs, which include the William D. Ford Federal Direct Loan Program, the Federal Perkins Loan Program and the Federal Family Education Loan (FFEL) Program.
Step 2: Choose a lender
Borrowers with federal student loans should first consider consolidating their loans with a direct consolidation loan through the U.S. Department of Education. These loans offer relatively low interest rates and let you retain federal benefits such as possible loan forgiveness and income-driven repayment plans.
But you could also consolidate your federal loans or a combination of private and federal loans with a private lender, like a bank or credit union. This could make sense if a private lender offers a significantly lower rate, but just remember you’ll sacrifice federal benefits if you go this route.
Step 3: Gather your information
You’ll need your loan documents, statements and personal and financial information handy when you apply for a consolidation loan. Save time by gathering this information before you start the application process.
Step 4: Apply and await approval
You can apply for a direct consolidation loan via the U.S. Department of Education website. You won’t be subject to a credit check when you submit your application for federal student loan consolidation. Allot around 30 minutes to complete your application, and expect the approval process to take several weeks.
If you apply with a private lender, the application process will vary depending on the lender you choose, but many offer online applications. You’ll likely be subject to a hard credit check after applying, which could temporarily lower your credit score by a few points. The process of consolidating with a private lender could take less time than consolidating through the U.S. Department of Education’s loan servicers.
Federal vs. Private student loan consolidation
While you may consolidate both types of student loans, there are limitations on what you can roll into a federal loan.
You can consolidate existing federal student loans with a federal direct consolidation loan through the U.S. Department of Education, or you may consolidate multiple private and federal loans with a new loan from a private lender. But unfortunately, consolidating private student loans with a federal direct consolidation loan isn’t an option.
Is student loan consolidation a good idea?
Whether you should consolidate student loans depends on your individual circumstances, says Leslie Tayne, founder and head attorney at Tayne Law Group.
If rolling several loans into one can help make your payments more manageable and affordable to you, then doing so may be a smart decision.
But there are potential downsides. “Consolidating federal student loans with a private lender can result in losing certain federal benefits, such as loan forgiveness and adjustable repayment plans,” Tayne says. “Refinancing private student loans may result in higher interest payments. It’s essential to compare rates of the current loans with the new rate offered via refinancing, and evaluate the possible impact on costs.”
It’s important to weigh the pros and cons if you’re considering student loan consolidation, as it’s not the right approach for everyone.
Alternatives to student loan consolidation
If student loan consolidation doesn’t sound like the best choice for you, then you might have other options to make your monthly payments more manageable.
Income-driven repayment: Borrowers with federal student loans might qualify for income-driven repayment (IDR). There are four IDR options available, and each looks at your income and family size when determining your monthly payments.
Private refinance: While loan consolidation and refinancing both let you combine multiple loan payments into one, borrower goals are typically different with each. The primary goal with consolidation is having a single payment, while the primary goal with refinancing is often a lower rate. Refinancing with a private lender can result in a lower rate, though you’ll sacrifice certain benefits if you refinance federal loans.
Deferment: Deferment, which is available with federal loans and some private loans, allows you to temporarily pause payments if you meet certain qualifications. Just be aware that interest might continue to accrue on your loans during deferment, depending on the type you have.
Frequently asked questions (FAQs) Will consolidating my student loans hurt my credit?
If you opt to consolidate your federal student loans using a federal direct consolidation loan, you won’t be subject to a hard credit check, so there will be no impact to your credit score. But if you consolidate your loans with a private lender, you’ll undergo a hard credit check, which could lower your credit score by a few points.
Once you’ve consolidated your loans, making your monthly payments in full and on time could help improve your credit score.
Who do I consolidate my student loans with?
Borrowers with existing federal student loans can consolidate them with a federal direct consolidation loan or a private lender. Those with private student loans can consolidate them with a private lender.
Can I still get student loan forgiveness if I consolidate my student loans?
It depends. If you consolidate your federal student loans with a federal direct consolidation loan, you can still benefit from federal loan forgiveness options. But if you consolidate your federal and private loans with a private lender, you’ll lose access to federal loan forgiveness benefits.
How many times can I consolidate my student loans?
Consolidating your student loans involves rolling multiple loans into one, so you can typically only consolidate your student loans once. That said, you could refinance your loans with private lenders several times to modify your rate or extend your term, assuming you can qualify for refinancing. But opting for longer terms will result in higher interest costs over your loan’s life.
Jess is a personal finance writer who's been creating online content since 2009. Before transitioning to full-time freelance writing, Jess was on the editorial team at Investopedia and The Balance. Her work has been published on FinanceBuzz, HuffPost, Investopedia, The Balance and more.
Jamie Young is Lead Editor of loans and mortgages at USA TODAY Blueprint. She has been writing and editing professionally for 12 years. Previously, she worked for Forbes Advisor, Credible, LendingTree, Student Loan Hero, and GOBankingRates. Her work has also appeared on some of the best-known media outlets including Yahoo, Fox Business, Time, CBS News, AOL, MSN, and more. Jamie is passionate about finance, technology, and the Oxford comma. In her free time, she likes to game, play with her two crazy cats (Detective Snoop and his girl Friday), and try to keep up with her ever-growing plant collection.
Maddie Panzer is the Updates Editor on the USA TODAY Blueprint team. Prior to joining the team, she studied journalism at the University of Florida. During her studies, she worked as a reporter for the New York Post, WUFT News and News 4 Jacksonville. She was also editor-in-chief of her school’s magazine, Orange and Blue. Maddie holds a B.S. In Journalism.