How to Consolidate Student Loans

student loans

It’s common for students who borrowed to pay for their schooling to have loans handled by more than one servicer. Consolidating student loans can make monthly payments lower by stretching the term of the loan into a longer loan, and cutting the interest rate. In many cases, you might be able to cut your monthly payments further if you qualify for a payment plan. Also, consolidation may be a good solution if you reached the end of your deferment or forbearance options. This article explains how to get started with federal and private student loan consolidation.

Some students have a mixture of federal and private loans. Unfortunately, you cannot include private loans in a federal loan consolidation. In theory, it is possible to include federal student loans in a private consolidation loan, but the circumstances where that makes financial sense are rare.

Start with your monthly statements to learn which of your loans are federal and private. Separate your federal and private loans into separate stacks, and set aside your private loans for a few minutes. If your statement is vague or unclear, call the customer service number on your statement and ask if you loan is federal or private. A customer service representative will be able to tell you your loan’s status.

Federal Loan Consolidation

Federal loans have many sources and program names. Here is a partial list of popular federal loans eligible for consolidation:

  • Federal Perkins
  • Federal Stafford Loans
  • PLUS Loans
  • Direct Subsidized Loans
  • Guaranteed Student Loans

This is a partial list. Here is a key point: Different lenders offered these and other federal loans, including Sallie Mae, FedLoan Servicing (PHEAA), Great Lakes Educational Loans Services, and Nelnet. However, not all student loans offered by these lenders are federal.

Highlight or underline the following information on the latest statements for each of your federal loans:

  • Loan type (Stafford, Perkins, PLUS, and so on)
  • Account number
  • Loan balance
  • Interest rate
  • Whether the rate is variable or fixed
  • Number of payments remaining
  • Name of the loan servicer (company accepting payments, such as Sallie Mae)
  • Any special status (loan in grace period, deferment or forbearance)

It may seem silly to need to know all of this information. After all, a federal student loan is a student federal loan, right? No. There are 25 federal loan types available. Each has its own rate and term, and you will need to know exactly which you have when you apply for a consolidation.

Your next step is the most difficult — deciding whether a federal loan consolidation makes sense. This varies depending on the age of each loan, the rate for each, and the amount of each loan.

The Dept. of Education Web site has a calculator that helps borrowers learn their exact payments. However, if your student loans are causing you distress, then an interest rate reduction will probably not be the reason for a consolidation. Instead, consolidating all loans in one of the Dept. of Education’s repayment plans will be your motivating factor.

You can apply for Income-based Repayment (IBR) or another payment plan as part of a federal loan consolidation. IBR, for example, allows a borrower to stretch out payments for up to 25 years, and set their monthly payments based on their income.

You can selectively apply for loan consolidation. For example, if one loan is a couple months away from payoff, you can elect to not include that loan, or others, in your consolidation. However, you must include information about your not-included loans on your Dept. of Education consolidation application in the section named “Loans You Do Not Want to Consolidate.”

Private Student Loan Consolidation

If your student loans are private, your consolidation options are limited to what your lender offers. Contact your lender or lenders to learn if it offers consolidation programs. If so, ask if it will give you a discount if you allow automatic payments.

Another option for homeowners is to consider a cash-out refinance. However, this is usually not an option for young adults.


Young adults with student loans often have other types of debt that can be consolidated.  It may be easier to consolidate debt (credit card or personal loans) than your student loan debt. In other words, step back and look at all of your debt as a whole, and attack your other unsecured debt if you cannot consolidate student loan debt.

3 Responses to How to Consolidate Student Loans

  1. Michael Smith says:

    You’re lucky, or certainly smarter than me, if you have federal instead of private student loans. The number of payment plans for federal loans is almost embarrassing. There are what, 3 or 4 of them? My private lenders? No, not so much. IBR for private loans would be a godsend.

  2. Adam says:

    Great Article! Thank you for the advice!

  3. I was lucky in that I only took out federal loans. I was able to consolidate those loans at around 3% back in 2002. I would definitely recommend consolidating for a lower rate and then working hard to pay off the loans quickly.

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