Student Loan Consolidation and Refinancing Guide

One thing we can all agree upon that we learned in school is that learning is expensive. For many students, student loans are a necessary means of paying for higher education. In fact, according to, the United States’ outstanding student loan debt reached $1.68 trillion in 2020, among 44.7 million borrowers.

Now that you’re out of school, though, your financial situation may have improved, and you may have an opportunity to restructure the way you repay the money through student loan consolidation. Additionally, if you’re having trouble keeping up with your payments, consolidation could be the fix you’re looking for.

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In this article

    What is student loan consolidation?

    Student loan consolidation is the process of taking multiple outstanding student loans and combining them into a single loan. The process is available for federal student loans and private student loans, though there are some restrictions if you have both types.

    The primary goal of private student loan consolidation is to save money on the overall cost of your loans. Additionally, you can streamline your repayment with fewer bills to pay, move away from variable rate options and lower your monthly payments. It’s extremely similar to credit card debt consolidation, but the exact benefits you’re eligible for depend on the particulars of your loans.

    [ Related: 3 Mistakes Students Make When Accepting Federal Aid ]

    How student loan consolidation works

    The process for how to consolidate your student loans depends on whether you have federal student loans or private student loans. For federal loans, you have two options. First, you can use a direct consolidation loan, which combines your loans and retains the benefits and flexibility that come with federal student loans.

    Your second option is to consolidate your federal student loans into a private student loan. In some instances, this option can help you to save significantly if you’re able to get a better rate. However, you do lose the protections and flexibilities only available to federal student loan borrowers. You would no longer have income-based repayment plans or the option for federal student loan forgiveness.

    If you have private student debt, your option is to consolidate through another private lender. Again, the primary goal here is saving money by getting a better rate, lowering your payments, getting away from variable rates or simplifying your repayment process.


    Private student loans and federal student loans are both eligible for consolidation, but the exact criteria differ between the two. For federal loans that you want to consolidate through the federal government, the loans must be in repayment or the grace period, and you must be consolidating more than an already existing consolidation loan. Several additional special circumstances exist that are outlined on the Federal Student Aid website.

    The eligibility criteria for federal loans to be consolidated into a private loan are the same criteria for going from a private loan to a private loan. You’ll need to gain approval through the lender, which will require an accepted credit score and a look at your income, job history and past payment history.

    Working with a federal student loan servicer

    Consolidating federal student loans is done through the federal government directly, even when your loans are with different federal student loan servicers. To get started with the process, you’ll fill out an application at the website.

    As you complete the Federal Direct Consolidation Loan Application and Promissory Note, you’ll let the government know which of your loans you’re interested in consolidating. Bear in mind the application must be completed in one sitting and should take around 30 minutes.

    [ Read: Who Is My Loan Servicer? ]

    Credit score impact of consolidating student loans

    Your credit score won’t have an impact on your ability to consolidate your federal student loans through the federal government. However, if you choose to use one of the best consolidation loans for student debt from a private lender, your credit score comes into play.

    When you’re privately consolidating loans, a private lender is effectively paying off your existing loans and issuing you a brand new loan. The terms and the interest rate associated with the new loan are based on how risky of a borrower you are. The riskier you are, the higher your interest rate will be. The less of a risk the lender feels you pose to default, the better your rate will be.

    While it would be great if student loan lenders could get to know all of us personally, they don’t have the logistical capacity to do that. Instead, they rely on credit scores to give a snapshot of how risky of a borrower you are based on your history and current financial picture. This is one of the main reasons building as high of a credit score as possible is so important.

    [ Read more: Here Are the Details of Paying Back Student Loans ]

    Weighted averages, explained

    When you’re consolidating your federal student loans with the federal government, you won’t be getting a lower or a higher interest rate. The federal government takes a weighted average of your existing loans and calculates a new fixed-rate based on that information.

    For example, if you have two identical and equal-sized loans outstanding with a 10% interest rate on one and a 5% interest rate on the other, your new rate when consolidating these loans would be 7.5%. If one of your outstanding loans is larger, a higher weight is given to that loan’s rate when calculating your new rate.

    The final number is rounded to the nearest one-eighth of a percent.

    [ Read: How Student Loans Affect Your Credit ]

    Why should I consolidate my student loans?

    The answer to the question of why you should consolidate your student loans depends on whether you are consolidating to a new federal loan or a private loan.

    If you’re consolidating to a new federal loan (federal to federal), the main benefit is simplicity. Instead of having to make multiple payments to different servicers, you only have to make one monthly payment. Additionally, you may have options for a different form of repayment or a different repayment length, which could have a favorable impact on your payment size.

    If you’re consolidating to a new private student loan (federal to private, private to private or federal and private to private), you may be able to take advantage of a more favorable interest rate. Based on your credit score and market conditions, you may be able to save significantly on the overall cost of your loans.

    Some additional benefits when moving to a new private student loan include adjusting your payment size, moving from variable to fixed rates and streamlining the repayment process.

    How to consolidate your student loans

    Ready to get started? We’ll walk you through the process, starting with how to consolidate your federal student loans. Borrowers should be aware of several things:

    • The federal process is free: Borrowers shouldn’t pay for help with their student loans. There are federal loan consolidation services that offer to help consolidate federal student loans for a fee. Whether or not this is an outright scam (many times the money is kept and no service is actually provided), the same services that the company charges for can be obtained for free from your loan servicer.
    • Consolidation is final: A Direct Consolidation Loan actually pays off the loans being consolidated and the old loans disappear. Potential consolidators should be aware that the process is irreversible.
    • There’s help if you need it: If you have problems or questions during this process, you can call the Federal Student Aid’s Loan Consolidation Information Call Center at 1-800-557-7392. Additionally, your loan servicer may be able to provide help with this process.

    Once you’ve completed your research and you’ve decided to consolidate your federal student loans with a Direct Consolidation Loan, the actual process of consolidating is relatively simple. The following is a step-by-step guide to obtaining a Direct Consolidation Loan.

    1. Log in at This process requires you to enter your FSA ID. If you have an FSA PIN and haven’t yet created an FSA ID, you’ll need to do that now. There’s an option to create an FSA ID on the login page.
    2. Start the application. The form that needs to be filed can be found by clicking the “Apply for Loan Consolidation” button on the home page. Those who want to apply online can simply click “Start,” while those who want to fill it out another way can find instructions for doing so on the same page.
    3. Choose which federal student loans to consolidate. As was previously mentioned, those that have made progress towards loan forgiveness or cancellation may want to leave those loans out of the consolidation.
    4. Decide whether to delay processing. If any of their loans are currently in the grace period, borrowers may elect to have their servicer delay the processing of the loan consolidation for one to nine months to take full advantage of the grace period for the loan(s).
    5. Select a loan servicer. The Federal Government contracts private companies to service federal student loans. These companies are called “loan servicers.” Direct Consolidation Loans are managed by one of four servicers chosen by the borrower. Your choices are: FedLoan Servicing, Great Lakes Educational Loan Servicing, Navient, Nelnet, CornerStone, Granite State – GSMR, HESC/Edfinancial, Mohela and Osla Servicing. If one of those servicers currently manages your loans, you can retain the same servicer or choose a different one.
    6. Choose a repayment plan. Regardless of which repayment plans the previous loans were enrolled in, you’ll need to select a new repayment plan for the consolidation loan. There are seven repayment plans to choose from, which fall into two categories: term-based or income-based. Under term-based plans, the monthly payment is determined by the term length. There are options for making equal monthly payments throughout the loan term or payments that start lower and increase as time goes by. Monthly payments on income-based plans are based on a percentage of your income, and qualify for loan forgiveness after a number of qualifying payments have been made (usually 20 years). If you choose an income-based plan, you’ll need to provide financial information. This can be submitted with the application by granting access to personal IRS tax information, otherwise, you’ll have to submit a copy of your most recent federal tax return to your loan servicer before the loan consolidation can be finalized.
    7. Provide personal information and references and submit the application. At this point, you just need to fill out some basic personal information. In addition, you’ll need to provide the names of two references who have known you for at least three years. After you’ve completed the form and double-checked it for accuracy, it’s time to submit it.

    [ Next: Goodbye Nelnet — Here’s What You Need to Know About the Federal Student Loan Overhaul ]

    What’s next: It’s important to note that while your application is being processed, you’ll still need to make payments on your old loans as usual. Once your application has been processed, your new loan servicer will contact you with instructions for how and when to start making payments on the consolidation loan.

    Check Your Student Loan Rates

    View our top-rated lenders and find the best rates today. It’s quick and easy.

    Student loan consolidation vs. student loan refinance

    With private student loans, you may be wondering if consolidation or refinancing is the best option for you. To answer this question best, you need to understand the differences between the two. Refinancing is when you take out a new loan with new terms that pay off a single existing loan. Consolidation is when you take out a new loan with new terms that pay off and combine multiple existing loans.

    As you study the pros and cons of both options, be aware that you may be able to do both. If you have several federal loans with a great rate and one private loan with a high cost of borrowing, you could consolidate the federal loans through the federal government and independently refinance the private loan through a private lender. There’s a lot of flexibility, and you must explore all options to find the optimal solution.

    [ More: When Does It Make Sense to Refinance or Consolidate Student Loans? ]

    Student loan consolidation pros

    • Works great for multiple loans. If you’ve got more than one outstanding student loan, consolidation is the only single-move solution that can handle everything at once. Refinancing only works with one loan at a time and comes with fees on each loan you change.
    • Streamlines your payments. You don’t have to keep making multiple payments to multiple companies or servicers every single month. After you consolidate, it’s only one monthly payment.
    • May help you save money. If you’re consolidating to a private loan, you may be able to take advantage of lower interest rates or improvements in your financial picture.

    [ Related: How to Avoid Capitalized Interest on Student Loans ]

    Student loan consolidation cons

    • Could lose federal protections. If you consolidate federal loans into a private student loan, you may be able to save money, but you will lose the added protections afforded to federal student loans.
    • Might not be optimal. If you try and consolidate a loan that already has a great rate, you might end up costing yourself money based on your new rate and the effects of additional loan fees.
    • May pay more in interest over time. If you consolidate for a lower monthly payment, you may achieve that goal, but you may end up paying more in total interest over the life of the loan.

    Student loan refinancing pros

    • Ideal for a single loan. If you’ve got one outstanding student loan with a high-interest rate, refinancing may help you to save significantly. This is the chief goal of refinancing a student loan.
    • May be able to get a better interest rate. The number one reason you may consider refinancing your loan is to get a better interest rate. This is especially the case if your financial situation has improved since you took out the loan, your credit score has gone up or the market rates have dropped.
    • May be able to lower your monthly payments. If you’re struggling to keep up with payments, refinancing may help you to lower your monthly payment. Additionally, you may have the ability to lower your monthly payments and save on the overall cost of your loan, depending on the status of your financial situation.

    Student loan refinancing cons

    • Could lose federal protection. If you choose to refinance your federal student loan into a private loan, you’ll no longer get the added protection and benefits that initially came with your loan.
    • Comes with additional fees. Refinancing with a private lender may get you a lower interest rate, but it also comes with fees. Remember, refinancing is taking out a new loan to repay old ones, which means you’ll have the same upfront costs again.
    • Could be more expensive overall. Many people look to refinance to lower their monthly payments. This is possible, but you may increase the total cost of your loan over time.

    [ Read: Take These Steps to Deal With Massive Student Loan Debt ]

    Student loan consolidation FAQs

    Student loan consolidation FAQs

    While there’s no specific time frame to qualify for student loan consolidation, your eligibility depends on several factors. In the case of federal student loans, you’ll need to complete an online application and specify which loans you want to consolidate. The application process can be completed online; the U.S. Department of Education will then evaluate your current loan circumstances and make a decision.

    For private loan consolidation, you’ll typically need to wait until you have a steady income and solid credit history unless you can find a creditworthy cosigner.

    If you’re looking to streamline student loans into a single repayment — federal or private — consolidating all your debt is a good idea. If you have some federal and some private loans but want to keep federal protections, you’re better-served consolidating only your private loans.

    Federal loan consolidation is a bad idea if you’re looking to pay less interest since you can’t get a lower interest rate and your term length will typically increase to account for your new, larger monthly payment.\Private loan consolidation is a bad idea if you need federal loan protections — such as access to income-driven repayment or loan forgiveness options based on your income history or career track — since you lose these benefits once you combine federal and private loans under a private lender.

    It depends on the type of loan. Federal loan consolidation can only happen once, unless you go back to school and take out new loans or if you have an outstanding federal loan that wasn’t included in your first consolidation.Private loan refinancing, meanwhile, can happen as many times as permitted by your lender.

    The answer to this question depends on the unique details of your situation. If you have multiple loans that you can achieve a favorable result by consolidating, then that would be your best move. However, if you only have one loan or only one loan with less than favorable terms, you may want to look into refinancing. Additionally, if you have several loans, you should explore the possibilities of doing both independently.

    Consolidating your student loans may offer the ability to get a lower interest rate, lower your monthly payment, simplify your payment process and move you away from variable interest rates. If you’re able to achieve some of these benefits within the parameters of your financial goals, it’s a smart move.

    The effects that consolidating your student debt will have on your credit depends on the details of your consolidation. If you consolidate your loans to lower your monthly payment and increase the size of your outstanding debt, it could lower your credit score. But even if that’s the case, the lower single payment should be easier for you to make regularly and on-time, which will have a much longer-lasting effect on your credit score.

    We welcome your feedback on this article and would love to hear about your experience with consolidating your student loans. Contact us at with comments or questions.



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    Jason Lee

    Contributing Writer

    Jason Lee is a U.S.-based freelance writer with a passion for writing about dating, banking, tech, personal growth, food and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill sets with the rest of the world. Follow Jason on Facebook here

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    • Courtney Mihocik
      Courtney Mihocik
      Loans Editor

      Courtney Mihocik is an editor at The Simple Dollar who specializes in personal loans, student loans, auto loans, and debt consolidation loans. She is a former writer and contributing editor to,, and elsewhere.