Federal Loan Consolidation allows you to combine multiple federal student loans into one loan. Loan consolidation is not a good option for everyone, so you should consider your situation carefully before deciding to consolidate.

A common misconception about consolidation loans is that by consolidating, you can get a lower interest rate on your loans. This is not the case.

Your interest rate on a consolidation loan is calculated by taking the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a percent. This means that if half of the loans you consolidate are at a 6.8% interest rate and half are at a 7.9% interest rate, the rate on your new consolidation loan would be right in between these two rates, at 7.375%.

Consolidating your loans can, however, give you a lower monthly payment because you can pay your loans off over 30 years. Keep in mind that by extending your payments, you are paying more interest over the life of the loan.

Benefits of Consolidation

  • Single monthly payment: if you have multiple lenders/servicers, consolidation can simplify your repayment, giving your one monthly payment on all of your loans. If your loans are already with one lender/servicer, this would not be a benefit for you
  • Lower monthly payment: As stated above, since you can pay over 30 years, your monthly payment may be lower
  • Fixed interest rate: for students who have federal loans that are at a variable rate (borrowed before July 2006), consolidation will fix that interest rate for the life of the loan. Loans borrowed after July 2006 already have a fixed interest rate, so this is not a benefit for newer borrowers.
  • Graduate PLUS Loan “Endorser Release”: if you needed a cosigner to obtain your Graduate PLUS loan(s), the only way to remove that cosigner from their obligation is to consolidate your Graduate PLUS loan(s). The loan(s) the cosigner signed for will be paid off and they will not have any obligation to repay your new consolidation loan.
  • Public Service Loan Forgiveness (PSLF): In order to qualify for PSLF, you must be repaying a Direct Loan. Prior to July 2010, there were two federal student loan programs – Direct Loans (loans made directly by the government) and FFEL (Federal Family Educational Loans, made by various banks/lenders). If you borrowed any loans under the FFEL program, you would need to consolidate in order for those loans to be eligible for PSLF.
  • Pay as You Earn Repayment Plan: In order to qualify for PAYE, you must be repaying Direct Loans. Prior to July 2010, there were two federal student loan programs – Direct Loans (loans made directly by the government) and FFEL (Federal Family Educational Loans, made by various banks/lenders). If you borrowed any loans under the FFEL program, you would need to consolidate in order for those loans to be eligible for PAYE.

Not sure about the type of loans you have? Check the National Student Loan Data System, Direct Loans will be labeled as “Direct” and FFEL loans will be labeled as “FFEL” or simply as “Stafford” or “Graduate PLUS.”

Disadvantages of Consolidation

  • While your monthly payment may be less, you will pay more over the life of the loan
  • You will lose your grace period on any loans included in the consolidation. Try to consolidate closer to the end of your grace period or let the Department of Education know when your grace period ends on your application and they will hold off on processing it until closer to the end of your grace period
  • If you have a Perkins loan, you will lose any cancellation benefits on this loan if you include it in your consolidation

How to Consolidate

  • You will need to provide information on the loans that you want to consolidate. We recommend creating a spreadsheet with loan information to streamline this process.
    • Start by going to the National Student Loan Data System and logging in
      • Write down the following information from NSLDS for each loan you want to consolidate: Loan Type, Total Owed (principal owed plus interest owed), Lender/Servicer Name, Servicer Address, Date Borrowed
        • You can also use the “My Student Data Download” button to download all of your loan information in one text file.
      • You will also need these 2 items which are not listed on NSLDS: your Account Number (if you don’t know check with your servicer or use your Social Security Number), and each loan’s interest rate (you can check with your servicer or review current loan interest rates on the Financial Aid website)
  • Go to www.loanconsolidation.ed.gov,click on “Borrower Services” and follow the instructions for consolidating your loans. The steps are:
    • Enter your personal information
    • Enter information for 2 references
    • Enter information about the loans you want to consolidate (gathered from NSLDS in the previous step)
    • Select your repayment plan. If you select Income-Based or Pay as You Earn, you’ll be asked to provide additional income and family size information that is required to apply for this plan.
  • The consolidation process can take 60-90 days. If you currently are making payments on your loans, you will need to continue to do so until you receive notice that your loans have been consolidated. If you are not able to make payments while you go through the consolidation process, you can request a forbearance from your loan servicer(s).