When to Consolidate Private and Federal Student Loans

Many borrowers take out private and federal student loans to get through college. It can be a hassle to make several monthly payments. You can consolidate private and federal student loans into one payment with private lender refinancing. But before you do, make sure you’re aware of the consequences. 

Before you consolidate your federal and private student loans, note that the government’s Direct Consolidation Loan can’t be used to consolidate private debt. Further, if you pay off your federal debt with a private loan, you’ll lose all the federal student loan benefits.

Find out whether and when to consolidate private and federal student loans, the pros and cons of student loan consolidation, and how to consolidate your debt if you choose to do so.

In this guide:

• When should I consolidate private and federal student loans?
• Is there a difference between consolidation and refinance?
• Pros and cons of consolidating private and federal student loans
• What if I want to consolidate my private and federal loans together?
• What if consolidating federal and private student loans doesn’t make sense?

When should I consolidate private and federal student loans?

It’s not possible to consolidate private and federal student loans with a federal Direct Consolidation Loan, but you can refinance them with a private lender. 

Refinancing may be appealing if your federal loan interest rates are high and you won’t use the federal loan benefits, such as loan forgiveness.

Can I consolidate private and federal student loans any time?

You can consolidate private and federal student loans at any time by refinancing them with a private lender. The federal government’s debt consolidation loan can only consolidate federal student loans, not private student loans.

It makes sense to consolidate federal and private student loans if your federal student loan interest rates are high and you don’t plan to use the federal loan benefits. 

If you might need loan forgiveness or an income-driven repayment plan, consider keeping your federal loans.

Although you can consolidate your private and federal student loans anytime by refinancing them with a private lender, make sure you’ve thought through the consequences first.

When should I not consolidate federal and private student loans?

You may not want to consolidate federal and private student loans if you already have a low interest rate on your federal student loans. 

Even if the interest rate is high on your federal student loans, you might consider keeping them if you want the option to use federal loan benefits in the future.

If you refinance federal student loans with a private lender, you’ll no longer qualify for student loan forgiveness. Plus, you won’t have access to income-driven repayment plans, loan deferment, or loan forbearance if your financial situation changes.

If you think you might need these benefits in the future, consider consolidating your private and federal student loans separately.

Is there a difference between consolidation and refinance?

The terms “consolidation” and “refinance” are often used interchangeably. Consolidation usually involves combining more than one loan into a new loan. 

In contrast, you can use a refinance even if you only want to pay off one loan with a new loan, often to get a better rate or lower your payment. 

Refinancing one or more federal student loans with a new federal student loan is referred to as consolidation. 

Combining multiple private student loans, or a mix of private and federal student loans, is most often referred to as refinancing, but some lenders may also call it consolidation. 

Pros and cons of consolidating private and federal student loans

Pros

• It’s easier to pay your bills each month.

  Rather than several monthly student loan payments, you’ll only need to make a single payment.

• Your payment may be lower.

  Depending on the refinancing option you choose, you may be able to choose a longer repayment term—for instance, 10 years versus three years. This could result in a lower monthly payment. 

• You could get a lower interest rate.

  If your credit score or financial situation has improved since you took out your private student loans, you may qualify for a better interest rate. 

• Cosigners might be removed from your student loans.

  You may be able to eliminate cosigners from your student loans if you can qualify for the loans on your own. 

Cons

• Federal student loan forgiveness programs go away.

  You’ll lose access to federal student loan benefits, such as public service loan forgiveness and other forgiveness programs, if you refinance your federal student loans with a private lender. 

• Income-driven repayment plans won’t be an option.

  If you refinance your federal student loans with a private lender, you’ll no longer qualify for the federal government’s income-driven repayment plan. 

• Forbearance and deferment plans will no longer be available.

  After refinancing your federal student loans with a private lender, you can’t access federal forbearance and deferment plans that lower or pause your payments if you experience hardship.

• Maximum repayment terms might be shorter.

  Depending on the size of your federal student loans, you may qualify for a repayment term as long as 30 years. You must pay off most private student loans in no more than 10 years.

What should I do if I want to consolidate my private and federal student loans together?

After you’ve decided to consolidate your private and federal student loans together, you should:

• Consider whether you’re willing to lose your federal loan benefits. Before you go through with the refinancing, make sure you’re comfortable giving up access to federal benefits.
• Determine how much you can afford each month. Evaluate your budget to see how large of a student loan payment you can afford. Although your payment will be bigger with a shorter repayment term, you’ll pay the least interest over time.
• Make sure your credit is in the best possible shape. Check your credit score to see whether you qualify for the consolidation loan. Fix any issues on your credit to ensure it’s in good shape. This may include paying off or reducing credit card balances and curing past-due amounts. 
• Find a student loan refinance lender. Search for a lender to consolidate your private and federal student loans. Evaluate whether you meet the lender’s qualifications (such as credit score) and it offers the repayment terms you want before proceeding. 
• Apply for the refinance online. Once you’ve identified a lender, you can apply for the refinance online. Most lenders will run a soft credit check to determine whether you qualify and let you know the rates you can get. A full credit check will happen after you agree to the terms.
• Provide any required documentation. After you’re prequalified and decide to proceed with the refinance, your lender may ask for documentation about your income, such as pay stubs, and details about the student loans you’re refinancing, including account numbers. 
• Get approved and receive your new loan. You’ll accept the terms and sign the loan documents when your loan is approved. Your new lender will pay off your current student loans with the new one. 

If there’s any chance you might need to use the federal loan benefits, it may be best to keep your federal student loans.

What are my options if consolidating federal and private student loans doesn’t make sense?

If it doesn’t make sense to consolidate your federal and private student loans, you can refinance them separately. 

You can also refinance one type of student loan—for example, consolidate your federal student loans without changing your private student loans. 

Consolidate federal student loans

A Direct Consolidation Loan is offered by the U.S. Department of Education, a federal government division. It’s a way to consolidate multiple federal student loans into a new fixed-rate loan. You can’t use the Direct Consolidation Loan program to consolidate private student loans. 

Key features of the Direct Consolidation Loan program include the following:

• Fees: You won’t pay fees or other costs to consolidate your federal student loans. 
• Interest rate: The fixed interest rate on your loan will be the average of the existing rates on all the federal student loans you are consolidating. 
• Repayment terms: You may lower your payment with an income-driven repayment plan or by extending the repayment term (30-year terms are available in some cases). 

To consolidate your federal student loans with this program, you’ll start by reviewing your loans on the U.S. Department of Education’s Federal Student Aid website. Before applying online, you will select the loans you want to consolidate and review the consolidation options.

You’ll sign a new master promissory note (detailing the loan terms and conditions) before finalizing the consolidation. You won’t often provide other information unless you choose an income-driven repayment plan, where you’ll need to provide supporting income documentation such as tax returns. 

Consolidating federal student loans often occurs after you graduate from college, if you leave school without graduating, or if you’re enrolled in college less than half-time. You’ll need to be in your loan’s grace period or repayment period to be eligible for consolidation.

You shouldn’t consolidate your federal student loans if repayment isn’t yet required. You also shouldn’t consolidate loans with higher interest rates that you can repay soon. You’ll get a lower rate if you exclude higher-rate loans from the consolidation. (However, if you can’t pay the higher-rate loans sooner than the consolidation terms, it might make sense to include them.)

Refinance private student loans

You can refinance your private student loans at any time. However, you may not want to do this if you already have a low interest rate and can afford the payments. If interest rates are higher when you refinance the loans or extend the repayment term, you’ll pay more in the long run.

Once you’ve decided to refinance your private student loans, take these steps:

1. Search for a private lender that offers student loan consolidation. 
2. Get prequalified by applying with a private lender online.
3. Review the lender’s offers, and select the best one for your needs. 
4. Provide required documentation to the lender.
5. Get approved, and start paying on your new consolidated student loan. 

Once it approves you for a consolidation loan, your lender will use the proceeds from your new loan to pay off your current student loans. All that’s left is setting up an account online for your new student loan and working on paying it off.