Should I consolidate my student loans?

The choice between refinancing student loans and consolidation is dependent on multiple factors. (iStock)

Many students graduate with multiple student loans, often from different lenders. This can make the repayment process more complicated, but there's an option to fix it: You can consolidate student loan debt.

A Direct Consolidation Loan is a specific type of federal student loan available if you already have federal student debt or loans issued by the Department of Education (DOE). You'll need to apply online with the DOE for a Direct Consolidation Loan and you can use it to repay one or more of your existing government loans including Subsidized Loans, Unsubsidized Loans, and PLUS Loans.

Unfortunately, if you have private student loans -- those from banks, credit unions, or online lenders -- you can't use a Direct Consolidation Loan to combine them. You could, however, take out a new student loan refinance loan with a private lender to repay one or more of them. This will have the effect of consolidating your loans since you're combining them into one big new loan -- but it could also change your interest rate and repayment terms. 

What is student loan consolidation?

Student loan consolidation is a specific process you can complete only if you have federal loans from the Department of Education.

It involves getting a new Direct Consolidation Loan from the DOE and using it to repay one or more existing federal loans. In fact, although it's called consolidation, you can actually get a Direct Consolidation Loan even if you have just a single federal student loan to repay.

Consolidation will not change your interest rate, as your new loans will have a rate based on a weighted average of your old ones. But consolidation can open up the door to more flexible repayment options.


What's the difference between consolidating and refinancing?

Consolidating means taking out a Direct Consolidation Loan to repay existing debt for the purposes of changing your loan servicer, loan terms, or both.

Refinancing also involves getting a new loan and using it to pay off existing student debt, often combining multiple old loans into one new one. But refinance loans aren't available from the government; they only come from private lenders. Online marketplace Credible can help you compare deals from various private vendors to ensure you find the best offer for you.

Banks, credit unions, and online lenders all offer student loan refinance options but typically only to people with good credit and proof of sufficient income to repay the debt.

Refinancing is the only way to change payment terms -- including your interest rate and payment timeline -- on private loans. But it typically makes sense only if you can get a new loan at a lower rate. Otherwise, your payoff could be much more expensive. Credible makes it easy to view a rates table that compares rates from multiple lenders at once so you can see if you're able to qualify for a new low-cost loan. 


It's also possible to use a private student loan refinance loan to repay federal loans, but doing so means giving up the chance at loan forgiveness and losing the borrower benefits that federal loans provide.

Pros and cons of consolidating student loans

There are both advantages and disadvantages to consolidation.


  • You can simplify the repayment process. You will only have one payment to make.
  • You'll get a broader choice of repayment plans. Consolidation provides more flexibility in repayment than other loans, including offering plans lasting as long as 30 years.
  • You can reduce monthly payment costs. Since consolidation opens the door to different repayment plans, it's possible to lower your monthly bills.
  • You'll get one fixed interest rate. You won't have to worry about owing different loans at different rates since your new loan will have one APR based on the rates from the loans you consolidated.
  • You'll reset your deferment and forbearance options. Since your consolidated loan is a new one, you'll be fully eligible for deferment and forbearance again even if you had paused payments under your old loan.
  • You could become eligible for Public Service Loan Forgiveness (PSLF). For Public Service Loan Forgiveness to result in anything being forgiven, you need to make at least 120 on-time payments. For parents with PLUS Loans, the only available repayment options would pay off the loan in 10 years -- before forgiveness becomes available. A consolidated loan provides parents with an income-driven option so they can take advantage of PSLF.



  • Consolidating could slightly raise your interest rate. A refinance loan with a private lender could reduce the rate you pay (Credible provides an online student loan refinancing calculator to estimate your new payment cost). However, a Direct Consolidation Loan won't reduce your rate. In fact, when you consolidate, your new rate is determined by a weighted average of rates on the debt, rounded up to the nearest 1/8 of a percent. That means your new rate could be slightly higher.
  • You may pay more interest over time. If you opt for a longer repayment period, you'll pay more total interest on your consolidated loan.
  • You'll restart the clock on loan forgiveness. Any payments made on your old debt won't count toward Public Service Loan Forgiveness or forgiveness available under income-driven plans.
  • You may lose borrower benefits. If your existing lender offered auto-pay discounts or you had Perkins Loans that offered additional benefits, you'll lose those advantages by consolidating.
  • You can't consolidate private loans. You can refinance private loans with another private lender, but they cannot be included in a Direct Consolidation Loan.


When does it make sense to consolidate student loans?

Consolidation makes sense if your goal is to:

  • Combine multiple federal loans into one but not pay off private student loans with your new loan.
  • Gain access to extended repayment plans that allow you to repay loans for as long as 30 years.
  • Make Parent PLUS Loans eligible for an income-driven repayment plan and for Public Service Loan Forgiveness.

You can qualify for a Direct Consolidation Loan regardless of your credit score. You'll need to apply on the Department of Education website and provide details on which federal loans you're consolidating.


How to know if you should consolidate your student loans

You may want to consolidate loans if:

  • You're having difficulty managing loans with multiple servicers and you want one monthly payment.
  • You'd prefer more flexibility in your options for repayment including longer repayment periods.
  • You're no longer eligible for deferment and you want to restart the clock.
  • You need to consolidate to become eligible for Public Service Loan Forgiveness or an income-driven payment plan.

However, if your goal is to lower your interest rate or to combine multiple private loans, you'll need to look into refinancing instead. Visit Credible to get personalized student loan refinancing rates without affecting your credit score to see if refinancing is the better option for you.