What to Know Before Consolidating Federal AND Private Student Loans


Note that the student loan situation has changed due to the impact of the coronavirus outbreak and the relief efforts of the government, student loan lenders and others. Check out our Student Loans Hero Coronavirus Information Center for news and additional details.

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Although you cannot consolidate federal and private student loans through a direct consolidation loan, you can combine them through refinancing.

A direct consolidation loan comes from the federal government and is only available for federal loans. However, you can consolidate federal and private student loans by refinancing with a private lender, such as a bank, online lender, or credit union.

Let’s take a closer look at the two types of consolidation so you can decide if either option is right for you. Specifically, we will cover the following:

How to Consolidate Student Loans with a Direct Consolidation Loan

If you have federal student loans, you can consolidate them with a Direct consolidation loan. Most federal student loans are eligible, including subsidized direct loans, unsubsidized direct loans, and PLUS loans.

Private student loans, however, are not eligible. You cannot consolidate federal and private student loans through direct loan consolidation.

You can apply for a free Direct Consolidation Loan on StudentLoans.gov. When you apply for federal student loan consolidation, you will also have the option of choosing new repayment terms.

For example, you can choose a long term (up to 30 years) to reduce the monthly payments. Keep in mind, however, that extending your term means you’ll pay more interest in the long run.

You should also note that federal student loan consolidation slightly increases your interest rate. When consolidating, your new interest rate will be the weighted average of your old interest rate rounded to the nearest eighth of 1%.

This small increase could be worth the cost, however, as federal student loan consolidation can seriously simplify repayment.

Pros and Cons of Federal Student Loan Consolidation


  • Direct consolidation loans offer a one-time payment and potentially lower monthly payments.
  • Federal loan consolidation is free through the federal government. Beware of companies that offer to help you consolidate federal student loans for a fee.
  • No credit check is required to consolidate federal student loans and you can apply online.

The inconvenients

  • A lower monthly payment means paying off the loan over a longer period, which will cost you more because of the interest charges.
  • When you consolidate your federal student loans, you lose the ability to strategically target your highest interest rate and / or highest balance loans using a method such as avalanche of debt or snowball of debt.
  • Federal consolidation does not translate into a better interest rate. Rather, the new rate is a weighted average of all your student loan interest rates, rounded up to the nearest eighth of a percentage point.
  • Some federal consolidation loans may have higher interest rates than refinanced private loans. This difference can really add up over time – you can take a look at our refinance calculator to see how much.

How to consolidate student loans through refinancing

Your second consolidation option comes in the form of student loan refinancing. You can consolidate federal and private student loans through refinancing, which you will do through a private lender.

Not only will refinancing combine several loans into one, it could also lower your interest rate. If you have decent credit and a stable income, or if you can apply with a creditworthy co-signer, you may qualify for low rates on a refinanced student loan.

Plus, refinancing allows you to restructure your debt by choosing a new repayment plan. You could shorten your term to pay off your loan quickly. Or you can give yourself extra time and lower your monthly bills.

Most student loan refinancing companies, whether it’s a bank, credit union, or online lender like SoFi or Earnest, offer variable and fixed rates, along with terms. flexible repayment periods often between five and 20 years.

If you are considering refinancing, be sure to compare offers from several different lenders. You can check your rates online after providing some basic information (and don’t worry, your credit won’t be impacted).

By shopping around, you might find your best deal on a refinanced student loan.

Pros and Cons of Private Student Loan Consolidation

  • You can benefit by creating a more manageable financial situation, getting better terms, or guaranteeing lower monthly payments.
  • One of the great benefits of consolidating private student loans through refinancing is potentially getting a much lower interest rate. Your rate will be based on your creditworthiness or that of a co-signer.
  • If your credit score has improved significantly since the time you took out your loans, or if you’ve built up a solid income and work history, you’re more likely to get a low rate that could make refinancing a decision. smart financial.

The inconvenients

  • When considering consolidation, remember if you are extending the repayment term as well. Again, with more payments comes more interest.
  • Although there is no cost to create a direct federal consolidation loan, some private lenders will charge a set-up fee.
  • A credit check is required to consolidate private student loans through refinancing, which can be a disadvantage, depending on your credit history.

A word of caution on refinancing federal student loans

Refinancing and consolidating your loans through a private lender – not the federal government – means you are taking out a private loan. If you refinance Federal Student Loans, they will no longer be eligible for federal repayment options which can help you during tough times, such as,

Most private lenders do not offer these same plans, however some might forbear (or temporarily suspend your payments) during a time of financial hardship.

Before refinancing a federal student loan into a private student loan, make sure you are confident of your ability to repay, as you will lose access to federal protections.

Is Student Loan Consolidation Right For You?

Whether you have Federal Student Loans, Private Student Loans, or both, consolidation might be right for you if you’re looking to simplify repayment and ease the burden of the many maturities and loan officers.

Bundling federal student loans through a direct consolidation loan may also lower your payments (assuming you choose a longer repayment term), but may result in higher interest charges over time.

In contrast, consolidating and refinancing with a private lender could lower your monthly payments or save you money on interest – or maybe even accomplish both.

Before making any changes to your student loans, make sure you understand the ins and outs of both types of consolidation. By doing your due diligence, you will have a clear idea of ​​how the consolidation or refinancing will affect your borrowing costs over the life of your loans.

Melanie Locker contributed to this article.