Should You Consolidate Your Student Loans?

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Are your student loans putting a dent in your wallet? Fortunately, there are forms of relief available to assist.

Whether you’re having a tough time keeping up with the payments due to carelessness on your part or a lack of funds, consolidation is an option worth considering.

How it works

A direct consolidation loan, which is offered by the federal government, lumps all outstanding federal student loan balances into one new loan and grants you a repayment term of anywhere between 10 and 30 years. About 60 days after the new loan is disbursed, repayment commences.

Important considerations

While it may be convenient to consolidate all of your loans into one product, here are some factors you should consider before moving forward:

  • Streamlining. Although headaches associated with managing the various accounts and making timely payments come to a halt once you consolidate, you could lose some of your benefits. In essence, you are starting over with a clean slate, so the benefits from the other loans, such as rebates, interest rate discounts and cancellation benefits, will no longer apply.
  • Alternative payment plans. As I mentioned earlier, consolidating grants you a repayment period anywhere from 10 to 30 years. While this may lower your monthly obligations due to the extended repayment period, it could also tack on additional interest if the duration of the prior period was shorter. Therefore, you should compare your options before making a decision, as consolidating may cost you more than you think.
  • Fixed interest. Direct consolidation loans are assessed at a fixed interest rate, but there is no maximum limit.


According to, you must have at least one Direct Loan or FFEL Program loan that’s in repayment or in a grace period to qualify for a direct consolidation loan. You can apply for consideration upon completion of your program, if you withdraw or if your enrollment drops below full time.

What if your loan is in default? says:

If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new direct consolidation loan under the

  • Income-Based Repayment Plan,

  • Pay As You Earn Repayment Plan, or

  • Income-Contingent Repayment Plan.

There is no application fee, and prepayment penalties do not apply if you decide to wipe out the entire balance before the term expires.


Having second thoughts about loan consolidation and unable to meet student loan obligations? You have several other options:

  • Deferment. You may want to contact your loan servicer to see if you qualify for deferment, which will delay the accrual of interest and suspend payments for a specified period of time.
  • Forbearance. Ineligible for a deferment? Try getting a forbearance, which delays payments during periods of financial hardship, for up to 12 months. The only downfall is that interest will continue to accrue on the outstanding balance.
  • Modifying a repayment plan. Still no luck? You have the option to switch repayment plans at any time. Simply reach out to your loan provider to make the request.

Private loans

What about private student loans? They are not eligible for consolidation under a direct consolidation loan, so none of the information I have provided thus far applies.

However, you can consolidate private student loans through several financial institutions, such as It caters exclusively to students with private loans, and offer rates at the three-year LIBOR plus 4.4 to 6.9 percent.

Unlike with federal student loans, your credit rating plays a huge role in whether or not your application is approved and the interest rate that you receive. Therefore, a co-signer would strengthen your case.

To qualify for consideration, you must be a U.S. citizen or permanent resident and a graduate of an eligible institution. In addition, your monthly income must be at least $2,000, or you will need a co-signer.

This page at FinAid describes other options for consolidating private student loans.

Have you consolidated your student loans? If so, what monetary benefits have you derived from doing so? Let us know in the comments below or on our Facebook page.

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