So You Want to Consolidate Your Loans, Now What?

Is loan consolidation the right option for you? Learn more about the process and make an informed decision using the resources below.

1. What does consolidation mean?

Federal loan consolidation allows you to combine all (or some) of your federal student loans into one loan to streamline repayment and manage your monthly cash flow.

2. What is the interest rate on a consolidation loan?

The interest rate on a federal consolidation loan is a fixed rate equal to the weighted average of the interest rates on the federal education loans that are being consolidated, rounded up to the nearest one-eighth of one percent.

3. Am I eligible to consolidate my student loans?

To be eligible for Federal Loan Consolidation, you must have at least one loan from the Federal Direct Loan program or Federal Family Education Loan (FFEL) program that is not in an “in-school” status. The following loans may be consolidated:

• Federal Direct (Stafford) Loans - Subsidized & Unsubsidized
• Federal Grad PLUS Loans
• Federal Parent PLUS Loans
• Federal Consolidation Loans
• Federal Perkins Loans
• HEAL/HPSL Student Loans

4. What are the benefits of a federal consolidation loan?

A consolidation loan:

• Reduces your monthly loan payment by as much as half.
• Simplifies finances, from multiple payments to one payment. 
• Provides flexible repayment options with more affordable payments.
• Has no penalties for prepaying the loan in full or in part. You may make larger monthly payments or extra payments. You may also change repayment plans at least once a year.

If you have reached the time limit on forbearances and deferments, you may reset the clock to zero by consolidating. A consolidation loan is a new loan, eligible for the same deferments and forbearances as the original education loans.

5. Are there reasons I should not consolidate my student loans?

Yes, there are a few reasons you may not want to consolidate:

• Reducing the monthly payment often involves extending the repayment term on the loan. This will increase the total interest paid over the life of the loan. i.e increasing the repayment term from 10 to 20 years may reduce the monthly payment by a third, but it more than doubles total interest.
• If you consolidate your federal education loans during the grace period, you lose the remainder of the grace period.
• If you consolidate your Federal Perkins Loans, you lose the subsidized interest benefit and loan forgiveness options.
• When you consolidate student loans, any accrued but unpaid interest (for example, accrued interest on unsubsidized loans while in-school) gets capitalized (added to the consolidation loan balance). This causes interest to be charged on interest.
• If you are planning to make extra payments on your loans, you may wish to avoid consolidation. When your loans are kept separate, you can target the loans with the highest interest rates for accelerated repayment. Consolidation eliminates the possibility of prepaying specific loan however, there is no penalty for prepaying a consolidation loan.

You may not need to consolidate to get an extended repayment or income-based repayment plan. Contact your loan servicer to learn about all repayment options available to you. 

6. I have student loans through private lenders, too. Can I include these loans with my federal consolidation loan?

No, private loans cannot be included in a federal consolidation loan. Contact your private lender to see if they provide any consolation options.

7. Will I be charged a fee to consolidate my student loans?

No, there are no fees associated with consolidating your loans.

8. Can I still get a deferment or forbearance on a consolidation loan?

Yes, federal consolidation loan will retain all of the benefits of a federal education loan, including:

• Deferment of the loan payments while you are enrolled in school on at least a half-time basis. You are eligible even if you graduate but return to school for further education.
• Economic hardship deferment for up to 36 months.
• Forbearance for up to 36 months.
• Full or partial loan forgiveness through federal loan forgiveness programs, such as public service loan forgiveness and teacher loan forgiveness.  Remember, you will lose loan forgiveness options for the Federal Perkins Loan.

9. How do I figure out how much I owe and what the interest rates are on my current loans?  

Log into NSLDS, the National Student Loan Data System. You will need an FSA (Federal Student Aid) ID and password. If you have not yet done so, you may create an FSA ID at this site. Your FSA ID is different from your FAFSA pin, but may link your FAFSA PIN to your new FSA ID.

10. How can I lean more about consolidating my student loans?

Your federal loan servicer can tell you more about consolidation loans. To get started, you can get more information at 
studentaid.gov.