Student Loan Consolidation : How to choose the Right Company

Are you planning to consolidate your student loans? Read on to find out what exactly is Consolidation, key points to remember before consolidating, the process and if student loan consolidation is the right move for you.

Updated by Shrestha Dey on 20th February 2020

The concept of Student loan consolidation was introduced to make it easier to repay off student loans for millions of debtors. Consolidation loans are applicable only for federal student loans. It is important to note that private student loans cannot be merged with federal student loans to reap the benefits of Student Loan Consolidation. In this article we shall discuss in detail Student Loan Consolidation and how to choose the right consolidator.

Table of Contents:

What exactly is Student Loan Consolidation?

When several parent or student loans are combined together into a bigger loan from a single lender to pay off the remaining loans, the term used for this process is known as Student Loan Consolidation

The interest rate of a consolidation loan is the weighted average of the interest rates of the loans being consolidated. This interest rate is fixed and will not change under any given circumstances. 

In case the loans being consolidated have different interest rates, the new interest rate would be somewhere in between. This doesn’t in any way mean that the new interest rate is comparatively lower when loans with different interest rates are consolidated. At best, it can lower monthly payments by extending the duration of the repayment.

So, you may ask, Why Consolidate Federal Student Loans?

  • Simply put, student loan consolidation simplifies repayment and makes it highly manageable. It is easier to repay one lender only once a month instead of repaying several lenders on different dates throughout the month

  • Student Loan Consolidation is a must in order to be eligible for certain repayment programs. In case of a borrower who wants to be eligible for Income Driven Repayment Plans or wants to seek Public Service Loan Forgiveness, it is a must to consolidate student loans

  • For borrowers who want to get back in track from being a defaulter, Student Loan Consolidation is a great option 

  • While taking up federal student loans, the borrower is in no capacity to choose their loan servicer. The loan servicer is alloted by the federal body. These loan servicers are private companies who work with government bodies on a contractual basis. In many cases the borrower may not be satisfied with loan servicers allotted to them. Student loan consolidation is a great option in such cases. The borrower gets to choose the loan servicer of their choice from among the nine servicers eligible for Student Loan Consolidation

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7 Points to remember while choosing the right Loan Consolidation Company

If you’re already boggled down with the burden of several student loans and are thinking of Loan Consolidation, may we suggest you keep the following points in mind while deciding upon the right Loan Consolidation Company

  • A reliable Student Loan Consolidation Company will have strong connections in the industry. It will be associated with reputable counselling associations. Always look for companies that has associations with reputed counselling firms

  • A lot of consolidation companies claim to be part of non profit organisations. More often than not these associations turn out to be fraud. If a company claims to be a non- profit organisation, they should be able to produce a certificate of proof

  • Beware of loan consolidation companies claiming to lower repayment amounts. The power of decision making lies solely with the federal government. A loan consolidation company can only help a borrower in consolidation procedure. 

  • If a loan consolidation company promises to bring student loan forgiveness to immediate effect, then the company is a fraud. It is a must for a borrower to complete 120 qualifying monthly payment in order to be eligible for student loan forgiveness

  • Beware of companies asking for monthly maintenance fees. A non fraudulent and reliable loan consolidation company will charge only a one time payment for loan consolidation or other forgiveness program

  • If a loan consolidation company is charging an interest rate higher than the current interest that the borrower is paying, then the loan consolidation company is not the right one. The interest of loan consolidation should always be less than the interest rate of the current loans

  • Check for the loan consolidation company’s ratings with Better Business Bureau (BBB) who ranks companies basis their degree of confidence that business is operating in a trustworthy manner. BBB ranks range from A+ to F with A+ being the best loan consolidation company and F being the worst 

How to Consolidate Federal Student Loan

Given below are the steps one should follow in order to consolidate their federal student loans - 

  • Select  Loans: The first step is to select the loans that should be consolidated and the ones that can be left out. Choosely wisely keeping in mind all the pros and cons


  • Choose a Repayment Plan: This means that the borrower can get a repayment timeline based on the balance of the loan or choose one that ties payments to income.


  • Read the Terms & Conditions : Before submitting the form online for consolidation, it is important that the borrower is thorough with the terms & conditions. The borrower must keep making student loan repayments as usual unless the new loan servicer confirms that the procedure for Consolidation is complete.


Is Student Loan Consolidation right for you?

Student loan consolidation can be a right fit for you if the following fits into your bill:

  • If you are someone who frequently misses repayments due to too many loan servicers and too many repayment dates, student loan consolidation is a great option. The borrower has to repay only once a month to just one lender. This lets you keep a track of your payments and you will never have to miss any further payments

  • If you are someone whose monthly budget is always tight and the various student loans exceed your budget, you can resort to Student loan consolidation which will help you lower your payments over an extended time period. Usually the time period for completion of repayment is upto 10 years after graduating from college. For most borrowers it isn’t a smooth ride. In such cases, a borrower can opt for student loan consolidation. Consolidation extends the duration of repayment from 10 years upto a duration of 30 years

  • If you have pre 2013 federal loans, then there are chances that some of the loans have variable interest rates. Variable interest rates may change depending upon the market conditions. This is where Student Loan Consolidation comes into play. If you want a stability of a fixed interest rates, consolidating federal student loans can be of great help

  • If your monthly student loan payments are a part of a qualifying forgiveness program, then you may not opt for  Student loan consolidation cause the clock restarts once you apply for consolidation. 

  • Student Loan Consolidation is a great option if you are considering multiple repayment plans and borrowers are free to choose from any of the plans that is best suited with their situation. The borrower can switch between repayment plans as well depending upon their need under Consolidation loans.

Although Student Loan Consolidation is a great way to repay a debt, it may sometimes turn out to be a harassment in case of fraudulence by the consolidation company. At the end of the day, it is you who is going to make the repayments. Hence, it is advisable that debtor does a thorough research on all the topics discussed above before choosing the right Loan Consolidation Company.