Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Student Loans Student Loan Repayment Should I Consolidate My Student Loans? Updated Dec 08, 2023   |   16-min read   |   This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Megan Hanna Written by Megan Hanna Expertise: Personal loans, home loans, credit cards, banking, business loans Dr. Megan Hanna is a finance writer with more than 20 years of experience in finance, accounting, and banking. She spent 13 years in commercial banking in roles of increasing responsibility related to lending. She also teaches college classes about finance and accounting. Learn more about Megan Hanna Reviewed by David Haas, CFP® Reviewed by David Haas, CFP® Expertise: Student loans, college financial planning, retirement planning, divorce, health insurance, life insurance, investment management David Haas, CFP®, advises families, professionals, executives, and business owners on how to build better financial futures. His expertise includes financial planning, investment management, and insurance. David is a board member of the Financial Planning Association of New Jersey. Learn more about David Haas, CFP® Consolidating your student loans involves combining multiple loans into one, simplifying the repayment process. This decision is crucial as it can impact your monthly payments, interest rates, and overall loan management. We’ll share when you might consider student loan consolidation, describing the pros and cons, eligibility criteria, and alternatives. By the end, you’ll have a clearer understanding of whether consolidation aligns with your financial goals and how to navigate the process effectively. Table of Contents Skip to Section Should I consolidate student loans?When to consolidate or refinance student loansCan I choose what company I consolidate or refinance my student loans with?How to apply for student loan consolidation or refinancingWhat alternatives do I have to loan consolidation?FAQ Should I consolidate student loans? Consolidating student loans can be beneficial, but whether you should do so depends on your loans. Federal student loans are granted by the U.S. Department of Education, with standard terms and interest rates unrelated to your circumstances. Private lenders offer private student loans. The rate and terms of a private student loan vary depending on the lender, your credit, and your income. These factors have no bearing on federal student loans. You must meet basic eligibility requirements (e.g., U.S. citizen, have a valid Social Security number, etc.). You can start by logging into the Federal Student Aid system to determine your loan type. Using this system, the U.S. government keeps track of all federal student loans and the assigned loan servicers. Private loans will be shown on your credit report, which you can get for free annually. The decision to consolidate matters because federal and private consolidation serves different purposes: Federal student loan consolidation: Combines federal loans into a single loan with a fixed interest rate based on the weighted average of consolidated loans. It can simplify repayment but does not lower the interest rate.Private student loan refinancing: Private loans cannot be consolidated. Instead they can be refinanced, which means obtaining a new loan from a private lender which pays off your existing loans. A refinanced loan will be at currently prevailing interest rates, which may be higher or lower than your previous rate(s). You can refinance your Federal student loans with a private lender, but you may forfeit federal benefits like income-driven repayment plans and loan forgiveness options. Federal consolidation is an option if you have federal loans and want to simplify your repayment without lowering your interest rate. However, if you have federal or private student loans (or both) and want potential interest-rate savings, private student loan refinancing may be an option. Even so, it’s crucial to weigh the pros and cons carefully. Remember, you may lose federal student loan benefits with private refinancing. So, if there’s a chance you might need to use your federal benefits in the future, it’s best to avoid using a private lender to refinance your federal student loans. Should I consolidate my federal student loans? Deciding whether to consolidate federal student loans involves weighing the advantages and drawbacks of two main options: federal student loan consolidation and private student loan refinancing. Federal student loan consolidation combines multiple federal loans into one loan, simplifying loan repayment. However, you can’t get a lower interest rate with this option. Instead, the fixed rate is based on the weighted average of your existing student loan rates, rounded up to the nearest 0.125%. It can also extend the repayment period, increasing the overall interest paid. Conversely, private student loan refinancing, offered by private lenders, may result in a lower interest rate based on your creditworthiness and income, reducing costs while streamlining payment. Refinancing federal loans, however, means forfeiting federal benefits and possibly dealing with variable interest rates. To illustrate the impact, consider a hypothetical scenario with a borrower holding $50,000 in student loans at various interest rates: Federal consolidationPrivate refinancingLoan amount$50,000$50,000Repayment term10 years7 yearsFixed interest rate4.5%4%Monthly payment$518.19$683.44Total interest paid$12,183.05$7,408.99 As you can see in the table above, even though the hypothetical rate is higher with the federal consolidation loan, the monthly payment is lower because the repayment term is longer. Even so, you would pay significantly more interest with the federal loan because of the higher rate and longer term. Remember that the rate you’ll pay on a private refinancing loan will vary depending on your credit and income. So, if you don’t have good credit, your interest rate could be much higher with a private student loan than a federal one. Also, you’ll lose federal student loan benefits (e.g., public service loan forgiveness or income-driven repayment options) if you refinance into a private student loan. The new SAVE income-driven repayment plan can lower your monthly payments if your income qualifies. If there’s any possible chance you might need these benefits now or in the future, you should opt for a federal consolidation loan. Pros Simplifies repayment by combining federal loans into one. Access to federal benefits like income-driven repayment plans. Fixed interest rate based on the weighted average of existing loans. Cons Does not lower the interest rate. May extend the repayment period, increasing the total interest paid. Federal student loan consolidation scenarios Scenarios when a federal student loan consolidation may or may not make sense follow: ScenarioFederal student loan consolidation makes senseFederal student loan consolidation does not make senseMultiple federal loansSimplifies repayment by combining it into one loanIf already managing payments effectivelyIncome-driven repayment plansAccess to income-driven plans for manageable paymentsIf satisfied with the current repayment planPublic Service Loan Forgiveness (PSLF)Eligibility for this program is still an optionIf not pursuing PSLF or other federal forgiveness programsFixed interest rate desiredProvides a fixed interest rate for predictabilityIf seeking to capitalize on potential interest rate decreases via a variable rateFederal loan benefits Retains federal benefits like loan forgiveness, deferment, and forbearanceIf willing to forgo federal benefits for potential private loan advantages Should I refinance my private student loans? Whether to refinance private student loans depends on your financial goals and circumstances. Refinancing private student loans can simplify repayment by combining multiple loans into one, potentially resulting in a single monthly payment and a fixed interest rate. However, it’s essential to consider the potential drawbacks, like the change of repayment options and the fact that private refinancing may not always lead to a lower overall interest rate. Ask the expert David Haas CFP® For most federal student loan borrowers considering refinancing federal loans into private loans, it does not make sense to forego the income-driven repayment plan options and loan discharge possibilities, even if you obtain a potentially lower interest rate with refinancing into a private student loan. However, if you have significant income and secure employment, are covered with disability and life insurance, and interest rates have decreased since you originated your student loans, it can make sense to refinance your federal loans with a new private loan. In this case, you would not lose protections you are likely to use and your overall costs can decrease significantly. Pros Simplifies repayment by combining multiple loans into one loan. May allow you to refinance a variable rate loan into a fixed rate loan to provide predictability in monthly payments. May allow you to refinance a fixed rate loan into a variable rate loan to provide a lower interest rate. Potential for a lower interest rate based on creditworthiness. Cons Some private lenders may charge fees for student loan refinancing. Variable interest rates in private refinancing may lead to future potential rate increases. Approval and interest rates depends on creditworthiness, affecting some borrowers. Private student loan refinancing scenarios Scenarios when a private student loan consolidation may or may not make sense follow: ScenarioPrivate student loan refinancing makes sensePrivate student loan refinancing does not make senseMultiple private loansSimplifies repayment by giving you one loanIf already managing payments effectivelyDesire for a lower rateProvides an opportunity for a reduced interest rateIf content with your current rateYour credit score has improvedMay secure a lower interest rate if your credit score has improvedIf creditworthiness is unlikely to result in a more favorable interest rate What if I have federal and private student loans? If you have both federal and private student loans, you can consolidate and refinance them separately. A Direct Consolidation Loan is an option for federal loans, allowing you to combine multiple federal loans into a single loan with a fixed interest rate. However, it’s important to note that private loans cannot be included in a Direct Consolidation Loan. To consolidate private student loans and federal ones, borrowers often turn to private refinancing through private lenders. This process involves obtaining a new loan to pay off existing loans, potentially securing a lower interest rate based on your creditworthiness. Even if you have both types of loans, you aren’t required to consolidate all your student loans. Borrowers might choose to consolidate only certain loans based on their unique circumstances. For instance, someone may consolidate federal loans to access income-driven repayment plans and retain federal benefits while leaving private loans separate to explore refinancing options for a lower rate. Pros Simplified repayment Consolidating both federal and private student loans can streamline repayment by combining multiple loans into a single, more manageable payment. Potential for lower interest rate Private refinancing may offer an opportunity for a lower interest rate, reducing the overall repayment cost. Convenience Managing a single loan can be more convenient and reduce the likelihood of missed payments. Cons Loss of federal benefits When consolidated with private loans, you lose federal student loan benefits, such as income-driven repayment plans and loan forgiveness. Variable interest rates Refinancing into a private loan with a variable interest rate may lead to potential rate increases over time. Fees and costs Private lenders may charge fees for student loan refinancing, potentially offsetting interest savings and increasing the overall cost of the loan. When to consolidate or refinance student loans The ideal time to consolidate or refinance student loans varies based on what’s happening in the economy and your financial circumstances. Changes in interest rates can impact the potential savings through refinancing. In rising interest rate environments, you may not be able to get a lower rate. Also, individual financial goals and the desire for specific repayment plans, like income-driven options, should be considered when deciding on the timing of student loan refinancing. For instance, if you refinance, you may lose credit for payments made under an income-driven repayment plan. Ultimately, there isn’t a one-size-fits-all answer. Instead, the best time depends on changes in interest rates and your personal financial goals. Some scenarios when you might want to consolidate your student loans are shown below: If …Should you consolidate?Special considerations You want Public Service Loan Forgiveness (PSLF)Yes, for federal loansConsolidation no longer resets forgiveness eligibility for PSLF, but if you refinance federal student loans into private, you’ll lose eligibilityYou want to pursue other student loan forgiveness optionsYes, but cautiouslyDon’t refinance into a private student loan, as you’ll lose this federal loan benefitYou’re still in schoolNoWait until after graduation to refinance your student loansYou have Parent PLUS loans (and are the parent)Yes, but cautiouslyBe careful about consolidating both Parent PLUS loans and your own loans into a single loan to avoid losing benefitsThere is a way to consolidate Parent PLUS loans twice to allow the consolidation loan to qualify for the SAVE IDR. But it must be completed prior to July 1, 2025Your parent wants to transfer Parent PLUS loans to you (the child)NoA direct Parent PLUS loan made to your parent can’t be transferred to youYou want to enroll in an income-driven repayment plan (e.g., SAVE Plan)MaybeCheck to ensure the type of consolidation won’t make your loan ineligible (1)You plan to go back to school or pursue higher educationNoWait until after finishing your schooling to consolidateYou and your spouse are considering consolidating all your student loans togetherNoThis could be messy in a divorce, and if the loan can be discharged, you lose that benefit if your loans are consolidated togetherYou’ve missed student loan payments or are in defaultYes, for federal loans Federal consolidation may help bring loans out of defaultYou have bad creditYes, for federal loansYour credit score isn’t a factor for federal student loansInterest rates are highNo, for private loansYou’ll pay a market interest rate for private loans, so wait until rates dropYou plan to take out another loan (e.g., a mortgage)Yes, but cautiouslyPrivate student loans require a credit check; avoid doing this unless the consolidation will improve your overall financial situationYou have student loans with variable interest ratesYes or no, depending on the interest rate environmentConsolidation allows you to lock in a fixed rate, which can be good if rates are expected to increase (and vice versa) Some federal consolidation loans are ineligible for certain income-driven repayment plans (e.g., some Direct Consolidation Loans used to repay PLUS loans made to parents may be ineligible for the SAVE Plan unless you consolidate twice prior to July 1, 2025). Can I choose what company I consolidate or refinance my student loans with? Federal borrowers cannot choose their loan servicer when consolidating their loans into a Direct Consolidation Loan. The U.S. Department of Education assigns the student loan to a specific loan servicer. You must work with the assigned loan servicer for repayment and related matters. Conversely, when refinancing student loans with a private lender, you can choose the lender you want based on your preferences and needs. Shopping around and comparing interest rates, repayment terms, and any additional fees different private lenders offer is essential. Factors like customer service and reputation should also be considered when searching for the best lender for refinancing private student loans. You should prioritize finding a lender that aligns with your financial goals and offers the best terms for your situation. How to apply for student loan consolidation or refinancing Applying for student loan consolidation or refinancing involves different steps for federal and private loans. With federal student loans, you’ll submit a consolidation application to the U.S. Department of Education by logging into your Federal Student Aid account. There’s no credit check for federal consolidation, but the government will review eligibility criteria to determine your approval. For instance, you must verify your income (e.g., tax returns) and family size for an income-driven repayment plan. The process could take up to four to six weeks. For private student loan refinancing, you’ll start by searching for a private lender. Once you’ve found one, you’ll generally submit an online application. Each lender has its own qualifications, so what it takes to get approved will vary. Depending on the lender, you may get approved in minutes. The rates for a private refinancing are based on your credit and income. For a federal student loan consolidation, the interest rate you’ll get is the weighted average of the rates on your existing federal loans, rounded up to the nearest 0.125%. Your credit has no bearing on the rate you’ll get. What alternatives do I have to loan consolidation? If consolidating your student loans isn’t an option or doesn’t make sense, but you’re struggling with your student loans, there are alternatives. For federal and private loans, reaching out to your loan servicer or lender and discussing the possibility of a modified repayment plan or temporary forbearance could offer short-term relief, allowing you to navigate your financial situation more effectively. Another alternative for managing federal student loan challenges is seeking an income-driven repayment plan. If you qualify for this plan, your remaining federal student loan debt can be forgiven after making payments for a set period. While these alternatives may not consolidate your loans, they offer strategies to alleviate the burden of student loan repayment based on your specific circumstances and financial goals. FAQ How does consolidating student loans affect my credit score? There’s no credit check to consolidate federal student loans, so this process does not affect your credit score. Conversely, a credit check is generally required if you refinance private student loans, which can temporarily reduce your credit score. Regardless of the student loan you’re consolidating or refinancing, on-time payments can improve your credit scores over time. So, if student loan consolidation allows you to make your payments on time more easily, you might also improve your credit score by building a positive credit history. How does student loan consolidation or refinancing affect my interest rates? Your interest rates will change when you consolidate or refinance your student loans. The exact effect will depend on your student loans and situation. For example, a federal student loan consolidation won’t result in a lower rate overall rate. You could, however, get a lower rate if you refinance private student loans. If you use a direct consolidation loan for your federal student loans, you’ll receive a fixed interest rate based on the weighted average of all the loans you’re consolidating. The interest rate will be rounded up to the nearest 0.125%, so your overall interest rate may be slightly higher. For private student loans, your new refinance loan will be based on the market interest rate at the time of the refinancing. You should only refinance your loans if you receive some benefit (e.g., lower rate, longer repayment term, lower payment). While a good goal might be to get a lower rate, you may decide it’s worth paying a slightly higher rate if you can lower your payment by getting a longer term. However, you’ll pay more in the long run with a longer term (even if the rate is lower). So, carefully weigh the benefits before proceeding. How does student loan consolidation or refinancing affect other loan forgiveness options (besides PSLF)? You’re only eligible for federal student loan benefits, such as loan forgiveness, if you have an active federal student loan. So, if you refinance your federal student loans into a private one, you’ll no longer be eligible for federal loan forgiveness programs. Before using a private student loan to refinance your federal student loans, ensure you’re not forgoing any future federal student loan benefits. Once you’ve refinanced the loans, it can’t be undone. So, if there’s any chance you might need these benefits in the future, don’t proceed. How does consolidating or refinancing my student loans affect eligibility for income-driven repayment plans? If you refinance your federal student loans into a private student loan, you’re no longer eligible for federal student loan benefits, such as income-driven repayment plans. However, you may still be eligible for this repayment plan if you consolidate into a federal direct consolidation loan. How does student loan refinance affect my cosigner? The effect on your cosigner will vary depending on the terms of the refinancing. You may be able to remove your cosigner if you can afford to repay the student loans on your own. However, the original cosigner may need to stay on the loan and remain responsible for paying if you don’t do so. Can I undo the consolidation or refinance transaction later? No, you cannot undo the transaction once you consolidate or refinance your loans.. Once the transaction takes place, it can’t be reversed. So, make sure the student loan consolidation or refinancing is what you want before proceeding.