Should You Consolidate Your Student Loans?

Holly Johnson is an insurance expert, award-winning writer, and mother of two who is obsessed with frugality, budgeting, and travel.

Betsy began her career in international finance and it has since grown into a comprehensive approach to journalism as she's been able to tap into that experience along with her time spent in academia and professional services.

Whether or not you should consolidate your student loans depends on several factors, including whether you have federal student loans, private loans, or a combination of the two. You can consolidate federal student loans while maintaining federal loan protections. But you can also consolidate or refinance any type of student loan with a private lender.

Federal loan consolidation with a direct consolidation loan won't change the borrower's long-term interest rates. However, consolidation with a private lender could. Learn about the advantages and disadvantages to consider when deciding whether to consolidate your student loans.

Key Takeaways

• Federal student loan consolidation lets you roll several federal loans into one new direct consolidation loan.
• The new interest rate on a direct consolidation loan uses the weighted average of current interest rates.
• Direct consolidation loans come with several benefits, including reducing the number of payments owed.
• Private student loan consolidation helps borrowers consolidate any type of student loans (federal or private) into a new private loan.

Federal Student Loan Consolidation

If you have federal student loans, you can consolidate them with a direct consolidation loan, which is a type of federal loan that combines several eligible loans into a new loan amount.

While direct consolidation loans help you combine several federal loans into one that may have a lower monthly payment, these loans use the weighted average of a borrower’s current loan interest rates (rounded up to the nearest one-eighth of 1%) to come up with their new rates. This means direct consolidation loans don't lead to lower interest costs for borrowers—even if interest rates for new student loans have dropped since the original federal loans were taken out.

Most types of federal student loans—including direct loans and Federal Family Education Loan (FFEL) Program loans—are eligible for consolidation, and there’s no fee to consolidate into a direct consolidation loan.

Private Student Loan Consolidation (Refinancing)

Private student loan consolidation, also called student loan refinancing, can apply to federal student loans, private student loans, or both. Borrowers can compare several student loan companies to find a new loan with a rate and term that works best for them, and they can move all their current student loans to the new one and begin making payments.

Private student loans can have fixed or variable interest rates, and repayment terms vary. However, private student loans give you the potential to qualify for lower interest rates if market conditions change and broader interest rates drop. Of course, only people with good to excellent credit and sufficient income can qualify for the best student loan refinancing rates.

If you refinance federal student loans with a private lender, you give up certain benefits and protections like deferment and forbearance, access to federal student loan forgiveness plans, and access to income-driven repayment (IDR) plans.

Pros and Cons of Consolidating Your Student Loans

Consolidating a student loan has several potential upsides, but this strategy also has downsides to consider.

• Potential for a lower interest rate
• Potential for a lower monthly payment
• Flexible repayment plans

• Credit and income requirements apply
• May need a co-signer
• Loss of federal student loan benefits

Pros Explained

• Potential for a lower interest rate: Depending on interest rate conditions and lender offerings, you may be able to consolidate your loans into one with a lower interest rate to save a significant amount of money in interest.
• Potential for a lower monthly payment: You can potentially lower the amount of your monthly payment by consolidating into a loan with a lower interest rate or longer term.
• Flexible repayment plans: A different loan may offer new repayment terms that could better fit your needs.

Cons Explained

• Credit and income requirements apply: You may have to meet new credit and income requirements when you submit an application for a new private student loan to consolidate your debt.
• May need a co-signer: Depending on your financial circumstances, particularly if you’re consolidating with a private lender, a new loan may require a co-signer.
• Loss of federal student loan benefits: If you consolidate your federal loans into a private loan, you will likely be unable to access federal student loan benefits, such as IDR plans or forgiveness programs.

Can You Consolidate Student Loans More Than Once?

When it comes to federal student loan consolidation with a direct consolidation loan, you can't consolidate this type of loan more than once unless you're adding another eligible loan to the mix. However, private student loans may be refinanced multiple times as long as you can qualify.

Can My Student Loans Be Forgiven if I Consolidate Them?

Direct consolidation loans are eligible for various student loan forgiveness plans, including forgiveness through IDR plans or Public Service Loan Forgiveness (PSLF).

What’s the Difference Between Consolidating and Refinancing a Loan?

The terms "consolidation" and "refinance" are used interchangeably and essentially mean the same thing, although consolidation generally refers to moving multiple loans into one loan. Refinancing can apply to moving either a single loan or multiple loans into a new loan. With a consolidation or a refinance, you will have a new monthly payment, interest rate, and repayment plan.

What Are Student Loan Consolidation Rates as of 2024?

Student loan consolidation rates for private loans vary throughout the year and change often based on market conditions. Rates on direct consolidation loans vary by borrower since they’re based on the weighted average of existing loan interest rates (rounded up to the nearest one-eighth of 1%).

The Bottom Line

Carefully consider whether you should consolidate your student loans, and fully understand the benefits and downsides. Potential advantages of refinancing include getting a lower monthly payment or potential interest savings with a private lender. However, you may have to give up federal student loan benefits. Factor in your personal priorities when you decide whether to consolidate your student loans.

1. Federal Student Aid. "Consolidating Student Loans."
2. Federal Student Aid. “What’s the Interest Rate on a Direct Consolidation Loan?”
3. Federal Student Aid. "Federal Versus Private Loans."

If you have federal student loans, you have several repayment options. An IDR plan allows you to make payments based on your income and family size, ensuring you pay what you can afford.

Student loan forgiveness is a release from having to repay the borrowed sum, in full or in part. There are currently several ways to attain student loan forgiveness for federal student loans.

A direct consolidation loan is a type of direct loan that combines two or more federal education loans into a single loan.

The Saving on a Valuable Education (SAVE) plan is an income-driven repayment (IDR) plan introduced by the Biden Administration that replaces the Revised Pay As You Earn (REPAYE) plan.

A PLUS loan is a federal loan for higher education, available to parents of undergraduates as well as to graduate and professional students.

From 1958–2017, Perkins loans provided low-interest loans to undergraduate and graduate students with exceptional financial needs.

• About Us
• Terms of Service
• Dictionary
• Editorial Policy
• Advertise
• News
• Privacy Policy
• Contact Us
• Careers
• EU Privacy

We Care About Your Privacy

We and our 100 partners store and/or access information on a device, such as unique IDs in cookies to process personal data. You may accept or manage your choices by clicking below, including your right to object where legitimate interest is used, or at any time in the privacy policy page. These choices will be signaled to our partners and will not affect browsing data.

We and our partners process data to provide:

Store and/or access information on a device. Use limited data to select advertising. Create profiles for personalised advertising. Use profiles to select personalised advertising. Create profiles to personalise content. Use profiles to select personalised content. Measure advertising performance. Measure content performance. Understand audiences through statistics or combinations of data from different sources. Develop and improve services. Use limited data to select content. List of Partners (vendors)