Federal Consolidation

By Anik KhanUpdated April 17, 2018


Overview

Consolidation is the process of combining multiple loans into a single loan. While borrowers can technically consolidate multiple loans into a single private loan by refinancing, the term “consolidation” in the context of student loans is almost always used to refer to consolidating multiple federal loans into a single Direct Consolidation Loan. Unlike refinancing, getting a new Direct Consolidation Loan may actually increase a borrower’s interest rate, as the new interest rate will be the average weighted interest of composite loans rounded up to the nearest 1/8 percent.

Usage

  • Indicate which loans you would like to consolidate.
  • NOTE: Loans made to students cannot be consolidated with loans made to parents. Therefore, our algorithm will automatically create two Consolidation Loans if loans made to students and parents are checked.

Eligibility

  • Virtually all federal loans, although loans made to parents cannot be consolidated with loans made to students (and vice-versa).
  • Loans must be in grace period or in repayment, and the borrower must have graduated, left school, or be below half-time enrollment.

Pros

  • Easier to manage one loan vs. multiple
  • Potential access to additional loan forgiveness programs
  • Potential access to additional repayment plans
  • Potential access to more favorable repayment terms
  • Can help bring loans out of default

Cons

  • May forfeit certain benefits associated with existing loans
  • The overall interest rate may go up
  • Qualifying payments for Public Service Loan Forgiveness is reset

Best For

  • Borrowers on older loan programs (e.g. FFEL) who want access to the repayment options and loan forgiveness programs of Direct loans
  • Benjamin Franklin

    An investment in knowledge pays the best interest.

    Benjamin Franklin
  • Pablo Picasso

    Action is the foundational key to all success.

    Pablo Picasso
  • Abraham Lincoln

    Let no feeling of discouragement prey upon you, and in the end you are sure to succeed.

    Abraham Lincoln