What is Student Loan Consolidation?
Student loan consolidation is a service that combines several student loans with one bigger loan. This results in your being responsible for just one student loan payment per month, making repayment easier to track and more streamlined. Often, this benefit alone is enough to eliminate much of the stress, wasted time, and fees associated with student loan repayment.
But consolidating or refinancing can also provide the opportunity to enroll in different repayment plans and even lower the interest rate on your loan, leading to major savings. Student loan consolidation is available for most federal loans, and many lenders offer private consolidation loans, as well.
Federal Student Loan Consolidation
If you have a federal student loan, you’re most likely eligible for a Direct Consolidation Loan. Only federal student loans can be consolidated with this type of loan, so if you want to consolidate your private loans too, you’ll have to work with an outside lender. However, some Direct Consolidation Loan repayment plans will incorporate the total amount of your student loan debt to determine how long you’ll have to repay your Direct Consolidation Loan.
Repayment of your Direct Consolidation Loan begins 60 days after the loan is disbursed, and there are several repayment plans to choose from based on your needs. You can submit your application for a Direct Consolidated Loan, or download and print a paper application, at StudentLoans.gov.
Direct Loan Consolidation Requirements
- Almost all federal loans are eligible for consolidation with a Direct Consolidation Loan. For a complete list, refer to the Federal Direct Consolidation Loan Application and Promissory Note.
- You’re usually eligible for a Direct Consolidation Loan after you graduate, leave school, or drop below half-time.
- The loans must be in a grace period or in repayment.
- You generally cannot consolidate an existing consolidated loan (exceptions to this apply: see the Application and Promissory Note for complete information).
- To consolidate a defaulted loan, you must make three consecutive satisfactory monthly payments on the loan first.
- You generally cannot consolidate a defaulted loan that is or has been collected through wage garnishment, unless the garnishment order has been lifted or the judgment vacated.
Federal Student Loan Consolidation Rates
The best student loan consolidation rate for federal student loans is simply whatever your existing interest rate is. Direct Consolidation Loans have one fixed interest rate for the lifespan of the loan. The interest rate of your Direct Consolidation Loan is calculated as the weighted average of the interest rates of the student loans you are consolidating, rounded up to the nearest 1/8th percent. There is no maximum interest rate for Direct Consolidation Loans. You can use this calculator to find out what your weighted average interest rate is on your student loans. You cannot negotiate the federal student loan interest rate and it’s not dependant on your creditworthiness.
Private Student Loan Consolidation
As with federal consolidation loans, private consolidation loans replace your current loan or loans with a new loan. The primary benefit, in this case, is turning multiple monthly payments into one payment that’s easy to make.
Other potential benefits of refinancing your student loans with a private consolidated loan include getting the best student loan consolidation rate available a lower interest rate.
Private Loan Consolidation Requirements
Every private lender has its own eligibility requirements when it comes to student loan consolidation (often referred to as “refinancing” in the private sector), but there are some common requirements that apply to most lenders:
- Most lenders require you to be a citizen or legal resident of the United States.
- Most lenders require you to meet certain employment, education, and income requirements.
- Most lenders have a minimum credit requirement.
- Most lenders have a minimum required student loan debt that you must meet to refinance (if your debt is too low, you may not be eligible).
Getting The Best Private Student Loan Consolidation Rate
Unlike the interest rate for Direct Consolidated Loans, private consolidation loan interest rates are primarily based on your credit score. The lender may also consider your employment history, your history of making payments on time and in full, and your cosigner’s financial information if you have one. We have put together a list of private student loan consolidation and refinancing companies who offer the most competitive rates available.
Compare the Best Student Loan Refinance Rates
We compiled a list of the most competetive rates
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
For many with student debt, private student loan consolidation can offer several benefits over federal consolidation:
Potentially Lower Interest Rate
Most student loan borrowers are in a better place financially after some time has passed since graduating college. When you first take out a student loan, you’re assumed to be a higher financial risk because your credit history is limited or nonexistent. By the time you’re ready to refinance your student loans, however, you’ve likely obtained your degree, found employment, and improved your credit. This can result in a lower interest rate now than when you first took out your student loan, making a consolidation loan well worth the time.
Fixed vs. Variable Interest
A private consolidation loan can potentially allow you to switch from a variable interest plan to a fixed-rate interest plan, or vice versa. Switching from variable to fixed can give you a more predictable payment plan and eliminate the stress of knowing your interest rate could change at any time. Changing from a fixed rate to a variable rate can allow you to get a lower interest rate, at least for a limited amount of time, which might be your best option if you plan on paying off your loan quickly.
One Easy Payment
You cannot consolidate your private loans together with your federal loans with the federal consolidation loan program. Some private lenders, however, will allow you to consolidate your federal loans along with your private loans under your private consolidation loan.
Consolidating Federal Loans with Private Refinancing: Drawbacks
While a private consolidated loan can result in a lower interest rate if you have favorable credit, it’s important to keep in mind the disadvantages of private consolidation.
The primary disadvantage of private student loan consolidation as compared to federal is that you will lose any benefits associated with your federal loans if you consolidate them through a private lender. Your federal loan (depending on your circumstances) may offer benefits like deferment, forgiveness, forbearance, income-based repayment plans, and even discharge options.
Before consolidating your federal loans into a private loan, make sure to find out which opportunities you’re eligible for with your federal loan, and whether those are something you’re willing to trade for smaller monthly payments and a lower interest rate.
Federal or Private: Which is Right for You?
The decision between private student loan consolidation and federal student loan consolidation depends primarily on two things: the type and status of your student loans and your credit score.
(If you’re not sure whether your student loans are private or federal, you can check the National Student Loan Data System.)
If you primarily have federal loans, and you’re interested in keeping the benefits associated with those loans, or you don’t have a good credit score, a Direct Consolidated Loan may be in your best interest. However, if your credit score has improved significantly since you took out your student loans and your primary objective is lowering your student loan interest rate, a private consolidation loan may be the best choice. Use this tool to help you figure out how much you could save by refinancing with better loan terms.