Consolidating Undergraduate Stafford Loan

Student loan consolidation refers to the process of combining multiple federal student loans into one new loan. While consolidation can’t lower your interest rates, it can reduce your monthly payments or allow you to access alternate repayment plans.

See how student loan consolidation could help you, and review the pros and cons before deciding on your strategy.

What Is Student Loan Consolidation?

Student loan consolidation is a way to combine multiple federal loans into a single direct consolidation loan. By applying through the U.S. Department of Education’s Federal Student Aid office, borrowers can streamline the bill-paying process, lower monthly payments and find a repayment plan that fits their needs. Borrowers who have defaulted on one or more federal student loans can use consolidation as an alternative to loan rehabilitation.

Most federal student loans are eligible for consolidation, but private student loans are not. The interest rate on your consolidation loan will be a weighted average of the rates on your existing debt. Submitting an application and consolidating your debt is always free of charge.

Should I Consolidate My Student Loans?

In general, student loan consolidation is only available for federal loans. Refinancing, on the other hand, is available to borrowers of both federal and private loans. For borrowers with federal student loans, consolidation can help lower and simplify monthly payments. It’s also a great way to access additional repayment plans and borrower protections, rehabilitate a defaulted loan or otherwise ease the stresses of debt repayment.

Student loan consolidation may be a good option if you want:

Lower monthly payments. Student loan consolidation extends the repayment period to up to 30 years, thereby lowering your monthly payment. Keep in mind, however, that you’ll pay more interest on your loan in the long run.
Simplified payments. If you’re currently making student loan payments to multiple servicers, consolidation can streamline this process so you only have to pay off one loan.
More repayment options and borrower protections. Consolidating federal loans enables borrowers to choose from a number of income-driven repayment (IDR) plans. What’s more, borrowers who would not otherwise be eligible for Public Service Loan Forgiveness (PSLF) can qualify by consolidating their federal loans under a direct consolidation loan.
A different loan servicer. If you’re having trouble with your current federal student loan servicer, consolidation gives you the flexibility to choose a new one. When completing your consolidation application, you’ll be asked to select a servicer for the new loan.
An alternative to loan rehabilitation. If you already have student loans in default, loan consolidation can help you pay off that loan if you agree to repay the new loan under an IDR plan or make three voluntary, on-time and full monthly payments on a defaulted loan before consolidating it.

Consolidation vs. Refinancing

Student loan consolidation enables borrowers to combine multiple federal student loans into a single federal student loan. Although consolidation simplifies multiple loans into one streamlined payment, it will likely increase the amount of interest you pay over time—meaning you can’t save money through consolidation. Instead, the process extends your repayment period, thus lowering your monthly payment but increasing the total interest you’ll pay.

Student loan refinancing, on the other hand, is the process of combining multiple private and/or federal student loans into a single private loan. Unlike consolidation, refinancing enables borrowers to lower their interest rates, which can save money over the life of the loan. However, refinancing student loans with a private loan means you won’t have access to federal loan protections, repayment options or forgiveness programs.

Pros of Consolidating Your Student Loans

Extended repayment term
Streamlined payment process
Lower monthly payments
Ability to switch from a variable- to a fixed-rate loan
Alternate repayment options, including graduated and IDR plans

Cons of Consolidating Your Student Loans

Extended debt period means paying more interest over time
Outstanding interest on individual loans becomes part of the consolidated loan principal
Loss of borrower benefits like interest rate discounts, principal rebates and loan cancellation benefits on certain loans
You’ll lose credit for any pre-consolidation payments toward PSLF or an IDR plan*
You can’t pay off individual loans to lower your monthly payment

*The Department of Education announced temporary changes that allow PSLF-eligible borrowers to consolidate certain loans without losing credit for earlier payments. If you consolidate qualifying loans by Oct. 31, 2022, previous payments may still be eligible for PSLF. Find full details of the action steps you must take on the Federal Student Aid site.

How to Get Approved for Consolidating Your Student Loans

Students who have graduated, left school or dropped below half-time enrollment are eligible to consolidate their federal student loans. There are no credit requirements for federal student loan consolidation. However, there are several other requirements that limit who can apply for a direct consolidation loan:

The loans you want to consolidate must already be in repayment or in the grace period, which lasts six months after you graduate, leave school or drop below half-time enrollment—depending on the type of loan.
In general, if you already consolidated a loan, you can’t consolidate it again without also consolidating another eligible loan.
The loans you want to consolidate cannot be in default unless you make three consecutive monthly payments on the loan prior to consolidation or agree to repay your new direct consolidation loan under one of several income-related repayment plans.
Likewise, consolidating a defaulted loan that’s being collected through wage garnishment—or in accordance with a court order—isn’t permitted unless the garnishment order is lifted or the judgment vacated.
In contrast, private student loan refinancing has approval requirements similar to traditional loans. To qualify, lenders typically require a credit score in the upper 600s, a debt-to-income ratio under 50% and a demonstrated ability to repay the loan.

How to Consolidate Student Loans

Federal loan consolidation is managed through the office of Federal Financial Aid (FSA). This makes it easy to log in, view your loan details and complete a consolidation application and promissory note, whereby you promise to repay the loan. The application process takes under 30 minutes, and approval can take between 30 and 90 days, so you should continue making payments on your existing loans until the consolidation loan is disbursed. Follow these steps to consolidate your federal student loans:

1. Sign in to Your Federal Student Aid Account

An FSA account is necessary to apply for federal student aid, so you likely already have login credentials. Start the consolidation process by signing in at StudentAid.gov and navigating to “Manage Loans” and then “Consolidate My Loans” in the toolbar.

2. Gather the Necessary Documents

Before beginning the consolidation process, compile the documents necessary to complete the application and promissory note, including your education loan records and personal income information. If you’re completing the application online, you’ll have access to all of your federal loan details. You also should locate contact information for two references who have known you for at least three years, including one parent or legal guardian.

3. Complete a Consolidation Loan Application

After gathering the necessary documentation, complete a Direct Consolidation Loan Application and Promissory Note. This free application can be submitted online or in hard copy and includes the following sections:

Choose Loan & Servicer. The first section of the loan application requires you to select which loans to consolidate and then calculates the new consolidated loan amount and interest rate. This is also where you’ll request a grace period and choose a loan servicer.
Choose Repayment. Federal student loan repayment options depend on the types of loans you’re consolidating and your financial status. This section of the application calculates your estimated monthly payments under several plans using your income, family size and tax status. Finally, you’ll be asked to choose a repayment plan before moving on to the next section of the application.
Terms & Conditions. This portion of the application includes the Borrower Understandings, Certifications and Authorizations, which—among other things—describes and authorizes the U.S. Department of Education’s processing and application of a direct consolidation loan against a borrower’s account. It’s also where you’ll promise to make payments on the consolidated loan and assert your understanding of—and agreement to—the terms and conditions of the consolidated loan.
Personal Information. In this section, complete all of the borrower information, including your driver’s license number, address, contact information and employer details. Then, enter the names and contact information of two references.
Review & Sign. Finally, review your completed application, acknowledge that all of the information is true and correct—and that you understand repayment requirements—and sign.

4. Await Approval & Continue Making Payments

After you submit your application, contact the consolidation servicer you selected with any questions about your application status. Online applicants receive their servicer’s contact information at the end of the application process; paper applicants receive it when they download or print their application. In general, the loan approval process takes between 30 and 90 days, but this varies by servicer.

Once your application is approved, the lender will pay off the balance of your existing loans with your direct consolidation loan. However, there will be a delay between your application, loan approval and when your original federal loans are paid off. For that reason, it’s important to continue making payments on your existing federal loans until your servicer notifies you the new loan was disbursed and your loans consolidated.

5. Begin Repayment

Your repayment amount and schedule are based on the repayment plan selected during the application process. The loan servicer will contact you with your payment schedule—and the date of your first payment—but borrowers generally have up to 60 days after loan disbursement to begin repayment. If some of your existing loans were in the grace period and you requested to delay consolidation, you won’t have to make payments until closer to that date.

How Long Does It Take To Consolidate Student Loans?

The direct consolidation loan application takes about 30 minutes to complete. Once you’ve submitted the correct paperwork, it typically takes four to six weeks for your loan consolidation to be completed. Your loan servicer will let you know when the first payment is due on the consolidation loan. If possible, set up autopay after that so you never miss a payment.

If you haven’t received a notice that your consolidation has been completed, continue to make payments on your existing loans until you do. Missing a payment can hurt your credit and result in late fees.

Alternatives to Student Loan Consolidation

Loan consolidation doesn’t work for everyone, so it’s helpful to understand the other options available for federal student loan borrowers. Deferment, forbearance and IDR plans may be a good option if you’re struggling to make your current monthly payments. However, if you want a lower interest rate—or want to consolidate private student loans—consider refinancing.

Deferment. Student loan deferment lets borrowers pause their payments for a set period of time. What’s more, if you have a subsidized federal student loan or Perkins loan, interest will not accrue during the deferment period. This option is available to borrowers who are back in school, unemployed or otherwise struggling to make minimum payments.
Forbearance. If you’re not eligible for deferment, you can apply for forbearance, which must be approved by your loan servicer. Under this alternative, you’ll be responsible for interest on all of your federal loans. The pause in payments is limited to 12 months at a time.
Income-driven repayment plan. Income-driven repayment (IDR) options let borrowers reduce their monthly payments to be more in line with their income. Under these plans, monthly payments are usually between 10% and 20% of a borrower’s monthly discretionary income.
Private refinancing. If you have federal or private student loans and want to lower your interest rates or combine into one easy payment, consider refinancing. The process for applying to refinance your student loans involves identifying a lender and completing a loan application process.

A Guide to Federal Student Direct Loan Consolidation

Consolidating federal student loans allows borrowers to streamline payments, but there are other important considerations.

To streamline the process, borrowers have the option to consolidate some or all of their federal student loans into one. Rather than multiple loans with differing interest rates, borrowers who consolidate all of their student loans would have one monthly payment at a fixed interest rate.

Consolidation is not for every borrower, however, so here are some factors to consider before applying for a federal direct consolidation loan.

Qualifying Types of Federal Student Loans

Borrowers must have the right type of student loans to qualify for consolidation. Most federal student loans qualify, including:

Subsidized, unsubsidized and nonsubsidized federal Stafford loans
Direct PLUS loans
Supplemental loans for students
Federal Perkins loans
Nursing student loans
Nurse faculty loans
Health education assistance loans
Health professions student loans
Loans for disadvantaged students
Direct subsidized and unsubsidized loans
PLUS loans from the Federal Family Education Loan program
Some FFEL consolidation loans and direct consolidation loans
Federal insured student loans
Guaranteed student loans
National direct student loans
National defense student loans
Parent loans for undergraduate students
Auxiliary loans to assist students

"There's still an option of possibly consolidating student loans under a private lender," says Jeff Arevalo, financial wellness expert at GreenPath Financial Wellness. "But the thing to keep in mind is that the borrower's credit and debt-to-income ratios are going to come into play for that. And if you do consolidate into some type of private loan product, then you may lose some of those protections and flexibility that you have when they are still under the federal umbrella."

Borrowers who can consolidate may also lose certain benefits, like principal rebates, loan cancellation or interest rate discounts, according to the U.S. Department of Education.

Should I Consolidate My Federal Student Loans?

Consolidation is advantageous for borrowers interested in the federal Public Service Loan Forgiveness program.

To be eligible for the program previously, borrowers needed be employed full-time by a U.S. federal, state, local, or tribal government or nonprofit organization in a qualifying job; have direct loans; be on an income-driven repayment plan and make 120 qualifying payments. But due to the establishment of the limited PSLF waiver on Oct. 6, 2021, any prior period of repayment now temporarily qualifies for PSLF, regardless of the loan program.

All nondirect federal student loans, such as FFEL program loans or Perkins loans, have to be consolidated into the direct loan program before the limited waiver expires on Oct. 31, 2022.

Under ordinary circumstances, consolidating federal student loans erases any progress a borrower has made toward PSLF by restarting the clock. Essentially, previous qualifying payments made toward student loan forgiveness no longer count.

Consolidation also provides borrowers a chance to change their student loan servicer, experts say. It can also lower monthly payments by giving borrowers up to 30 years to repay their loans.

Although borrowers can increase the length of repayment, their interest rates could be higher. Taking longer to pay back the loan typically means more money paid in interest over time.

As part of the current federal student loan payment pause that began in March 2020 with enactment of the federal CARES Act, the interest rate for direct consolidation loans is 0%. But when repayment resumes after Dec. 31, 2022, all direct consolidation loans will have a fixed interest rate, which will be determined by the weighted average of the statutory interest rates on the loans being consolidated rounded up to the nearest one-eighth of 1%. And there will be no cap on the consolidation loan's interest rate.

When deciding whether to apply for a consolidation loan, consider the interest you will pay "versus what you were paying," says Dan Claffey, director of EdMD, a college admissions and financial aid consulting firm.

"That can be hard for people to figure out when you have eight different loans at eight different interest rates with eight different balances," Claffey says. "Borrowers should make sure that they compare those numbers themselves before they just jump in and assume that they are going to save money because they are looking at the payment."

Another important consideration is that if you do the loan consolidation, any interest owed on loans to be consolidated will be added to the principal of your consolidation loan. This is called capitalization and means that interest will have to be paid on a higher principal balance than may have been the case had you not consolidated.

It's also important to note that federal student loans in default can be consolidated and, in some cases, reconsolidated.

How to Apply for Federal Student Loan Consolidation

There's no credit check to qualify for consolidation, and there's no application fee.

Borrowers can apply directly through the Federal Student Aid website or download and print a paper application to submit via mail to the chosen consolidation servicer. Those servicer options currently include Aidvantage, Great Lakes Educational Loan Services, HESC/EdFinancial, MOHELA, Nelnet and OSLA Servicing.

Be prepared to enter personal information, including a phone number and email, as well as financial information such as account statements, bills and education loan records. You must have a verified FSA ID.

You will also be asked to indicate which loans you want to consolidate and select a repayment plan. Processing of your application can be delayed if any of the loans chosen for consolidation are in a grace period.

The form, which is free to complete, takes an average of 30 minutes or less, according to the Department of Education. After consolidation, borrowers will have a single monthly payment.

The application is time-stamped. As long as borrowers submit it by Oct. 31, they will still qualify for the limited waiver even if it's not processed until after that date.

"Consolidation is taking a little bit longer than normal due to Biden's recent announcement of forgiveness," says Jan Miller, president of Miller Student Loan Consulting, LLC. "Be patient."

In August, President Joe Biden announced plans to cancel up to $10,000 in federal student loans for those earning less than $125,000 a year and up to $20,000 for borrowers who had a Pell Grant while in college.

Who Do I Contact if I Need Help?

Borrowers with questions about federal student loan consolidation can contact the Federal Student Aid Information Center, known as the FSAIC, which provides support on behalf of the Department of Education. The FSAIC's help number is 800-433-3243.

But the best point of contact, experts say, are your student loan servicers.

"They are the ones that handle the consolidations and that's who borrowers should be talking to," Claffey says. "Not a third party that sends them something in the mail or sends them a soliciting email."