Student Loan Consolidation: Top 9 Facts

student loan consolidation

Federal direct student loan consolidation is about combining your multiple student loans into a single loan with a single interest rate and single student loan servicer.

A direct consolidation loan also provides you access to various income repayment plans, which can provide several benefits to you, including deferral of student loan payments and even student loan forgiveness.

Let’s take a deep dive to further understand federal direct student loan consolidation.

1. Student loan consolidation does not actually lower your interest rate.

This is one of the top misconceptions regarding federal direct student loan consolidation. Rather than lower your interest rate, the federal government takes a weighted average of your outstanding federal loans and applies a single interest rate. So, you should think about student loan consolidation as an important management and simplification tool from an administrative perspective, but not from a lower interest rate perspective.

2. Student loan consolidation may slightly increase your student loan interest rate.

We often hear, “How can this be? I thought I can pay off my student loan faster with student loan consolidation.” When you combine the interest rates on your outstanding loans into a single, weighted average, the federal government rounds up the interest rate to the nearest one-eighth percent, or .125%.

For example, if your weighted average interest rate of your outstanding student loans is 5.00%, then your new interest rate will be 5.00% plus 0.125%, or 5.125%.

3. Compare all your choices

Before you consolidate your student loans, make sure to understand all your options, particularly the differences between direct loan consolidation and student loan refinance.

4. You can only consolidate your federal direct student loans once in a 180-day period.

Since you can only consolidate student loans once every six months, any second student loan consolidation will be added automatically to your first consolidation.

5. You can choose which student loans to consolidate

It is completely your decision to determine which student loans to consolidate and which student loans to exclude. For example, if you have one loan with a relatively lower interest than other higher interest loans, you may want to keep that loan outside a direct consolidation loan. The downside is that you will now have two loans to manage – your low interest rate student loan and your direct consolidation loan.

6. You can get a fixed interest rate with federal direct student loan consolidation

If you currently have variable interest rate student loans and are concerned about rising interest rates, then student loan consolidation will allow you to swap a variable interest rate for a fixed interest rate. This means you will now pay the same monthly payment each month regardless if interest rates increase or decrease.

7. Your student loan repayment plan for student loan consolidation depends on your outstanding student loan balance

The default student loan repayment term is 10 years under a standard student loan repayment plan. However, the repayment term on a direct federal consolidated loan range from 10 years to 30 years on the standard plan depending on your outstanding balance of your student loans.

Minimum Age:At least age of majority in your state
Citizenship/Residency:U.S. citizen or permanent resident (applies to co-signer too, if any)
Employment:You are currently employed or offer of employment to start within next 90 days
Eligible Schools:You graduated from a Title IV accredited university or graduate program

8. You can consolidate a defaulted student loan

Yes, you can consolidate a defaulted loan. However, you first have to work with your current student loan servicer to agree on proper repayment. Alternatively, you can select a repayment plan for your direct consolidation loan such as Income Based Repayment Plan, Pay As You Earn Repayment Plan, Income-Contingent Repayment Plan. This may be a better option than trying to rehabilitate each and every defaulted loan individually.

9. Student loan consolidation preserves eligibility for Public Service Loan Forgiveness

What is Public Service Loan Forgiveness? Public Service Loan Forgiveness, as its title suggests, forgives federal student loans for borrowers who are employed full-time in an eligible public service or non-profit job who make 120 eligible on-time payments. This equates to 10 years of student loan payments.

To be eligible, a borrower must either have a direct loan or a consolidated student loan, including loans under Family Federal Education Loans (FFEL), which existed before direct loans were introduced. To remain eligible for Public Service Loan Forgiveness, FFEL must be consolidated under direct loans.


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Doc Benjamins is not a lender and does not make loans. We are a free, independent and unbiased website that helps empower borrowers so they can make more informed financial decisions. The rates, terms and other student loan information provided on this website do not legally bind Doc Benjamins or the lenders referenced herein. The rates, terms and other student loan information are estimates and may change periodically and/or differ from your final rate and terms, which may be based on your individual credit profile and other factors as determined solely by the lender. If you would like to apply for a loan, please visit the website(s) of each lender and carefully review their rates, terms and conditions for further information.