Should i consolidate my loans? Make your decision today!

The article answers the question if you should consolidate your student loan, how the consolidation works, various factors that affect consolidation, its pros and cons you should know before you land upon consolidating your student loan.

Updated by Rakshitha N on 15th July 2020

After graduation, you could be lost at sea with multiple federal and private student loans, monthly payment with different due dates. Then comes consolidation and refinancing. Consolidation of your student loans is to combine all your federal loans with different rates of interest into one big loan, this gives you the benefit of having one payment to be made monthly, however the rate of interest varies as it is the weighted sum of all the rates of interests of your student loans. 

With this article you can get a better idea about consolidation of your loan,how it works and how you can benefit from it.There are various factors,pros and cons listed for you to decide before you land up on consolidation.

Table of content

What is consolidation of your loan?

Consolidation of your student loan is to sum up all the loans you borrowed during school into one loan where the new interest rate is calculated as a weighted score of all the interest rates. This gives you a benefit of getting a better repayment plan but this increases the time period you take to pay that one big loan. This could also affect the borrowers protection. Consolidating your student loans help in keeping track of your loans, eliminates the hard part of determining the due dates for each loan.

When to consider consolidation?

Its is unlikely for everybody to choose consolidation of their loan, Hence here are some situations when you can consider consolidation,

For a fixed interest rate

You should always choose a fixed rate of interest over variable interest rate.The variable rate of interest always changes according to the market. As you consolidate your loan, the period of repayment increases and when you settle upon fluctuating interest rate the payment you make monthly fluctuate. The payment you make is compensated as the interest for your loan.

When you don't qualify for loan forgiveness or IDR plan

IDR plan- In an Income Driven Repayment plan, The period is extended wit

h reducing the monthly payments. Depending on your income and your family size, the monthly payment is reduced. You pay for up to 20 years and later the rest amount is forgiven. But you must bear the taxes.

Public Service Loan Forgiveness- Government agency and non-profit organization offer loan forgiveness  programs for eligible candidates. Under this, after you make 120 payments, the amount left is forgiven, tax-free.

If you are looking for a lower monthly payment- When you graduate, the loan repayment comes to place, and in this transition graduates who are trying to stabilize financially would be looking for a repayment plan with lower monthly payments to be made. In such situations, you can choose consolidation of your loan. 

Ways to consolidate student loans 

Consolidating your student loan is beneficial and it can be done in two ways:

  • Federal Direct Consolidation Loan

  • Private lender

Federal Direct Consolidation Loan 

A Direct consolidation loan program was passed by George H.W Bush, that is to combine all the student loans into one student loan with a federal servicer.The rate of interest gets rounded up to 1/8th of a percent and you are not charged any fees for it. You apply for a consolidation of loan through All your federal loans can be consolidated except the Parent PLUS loan.

 Some pros and cons of federal direct loan consolidation is listed below:


  • Easier options for monthly payment as consolidation loans lets you make one monthly payment.

  • Increased period  of repayment.

  • It enables you to give a fixed rate of interest over a variable rate.

  • No credit requirement to consolidate your loans 


  • It may cause you to pay higher interest rates, as it is the weighted average of all the interests.

  • The credit score of those previous payments you made is lost and you start fresh with the consolidation plan.

Student loan consolidation with a private lender

You could consolidate your federal loan with a private lender if you couldn't qualify for a forgiveness . This is beneficial if you are financially stable. Some Pros and Cons of Consolidating your loans with a private lender are,


  • The rate of interest after consolidating your federal loan is independent of your credit score.

  • The borrower is benefited if he has a good credit history and who is financially stable, this could save him amount to be paid on the interest.

  • The interest offered by the private lender is much less than the interest offered by the federal direct loan consolidation.


  • Federal loans with benefits of Forgiveness and deferment are lost while consolidating the federal loans.

  • Lesser flexibility of repayment plan offered by consolidation at a private lender.

Worried about your college tuition? Find the best student loans suited for you

How to consolidate my federal student loans

Procedure to consolidate federal student loans

  1.  Login to the federal student aid website and choose the option Complete Consolidation Loan Application and Promissory Note.

  2.  Gather the necessary details to fill the application form.

  3.  Enter the loan you want to consolidate

  4.  Pick the repayment plan of your choice. It is advised to choose income-driven repayment plans.

  5.  Read terms and conditions, and once your servicer confirms the consolidation, you can go ahead to make your payments. 

What happens when you consolidate your private student loan?

Are you a graduate who forgets to make payments on time and you want to make one payment a month? Do you have a good credit history and are financially stable? 

Refinancing of your private student loan enables you to get a good interest rate with less monthly installments to be paid. The rate of interest is lowered and you could save some money as it gets reimbursed and in the time of obligation reimbursement. You could opt this to pay for a loan faster.

Consolidating your private loan could be the best option for you!

This enables you to obtain a lesser fixed rate of interest and also reduce the monthly payments you make. Usually you may consolidate your private loan if you have a cosigner with a good credit history. You can check on how likely it is to release the obligation to repay your student loan while your credit improves. This lets you manage your monthly payments easily.

The good thing is you can get to repay your loan at a lower rate of interest with an increased period of time. The goal of clearing your debts easily is attained by consolidating your loan, 

However, the tip is pay for a certain number of months and then to consolidate as you achieve financial stability. 

Are you aware of refinancing and consolidation scams?

In past years, Many scams have risen which keep their borrowers in struggle to clear the debts.

While you consolidate your loan, the lender drives to accept on the consolidation loan plan with a variable rate of interest, which is a scam, as the variable interest you pay to clear the loan only covers the interest but not covers the loan you borrowed.

While consolidating or refinancing your loan, you  must compare various offers available to you instead of settling to one. Note that the consolidation doesn't cost you any fee, the online application is also free of cost. So avoid companies that try to charge you fees to consolidate your loan.


So the question about if you should consolidate your student loan can be answered depending on the various factors In brief, You can save money by consolidating your loans and enables you to have easy access to your loan payment with flexible repayment loan. This can save you from breaking through your monthly budget. This also gives you access to forgiveness and federal loan protection. You should be aware that the lower rate of interest is available to you only with your good financial history.