Federal student loan consolidation combines multiple federal loans into a single Direct Consolidation Loan. While simplifying repayment, consolidation has important implications for forgiveness programs and repayment options.
How Consolidation Works
When you consolidate:
- Multiple federal loans become one loan
- New interest rate = weighted average of old rates (rounded up to nearest 1/8%)
- Single monthly payment replaces multiple payments
- New repayment term up to 30 years
- Servicer may change
When Consolidation Makes Sense
Good Reasons to Consolidate
- Have FFEL or Perkins loans and want PSLF eligibility
- Need access to income-driven repayment not available for current loans
- Want to simplify multiple loans into one payment
- Want to remove a defaulted loan from default status
- Have Parent PLUS and want ICR access
Poor Reasons to Consolidate
- Chasing lower interest rate (consolidation averages, doesn't lower rates)
- Already have all Direct Loans with no PSLF intent
- Close to completing PSLF or IDR forgiveness
- Want to extend term just to lower payments (pay more interest)
Impact on Forgiveness Programs
PSLF Considerations
Consolidation and PSLF:
- FFEL/Perkins loans must be consolidated to qualify for PSLF
- Consolidating Direct Loans resets PSLF payment count to zero
- Only consolidate non-Direct loans if pursuing PSLF
IDR Forgiveness
Consolidation affects income-driven repayment:
- Payment count may reset depending on program
- Some prior payments may now count under new rules
- Check with servicer before consolidating
Consolidation vs. Refinancing
| Feature | Consolidation | Refinancing |
|---|---|---|
| Loan type after | Federal (Direct) | Private |
| Interest rate | Weighted average | Based on credit |
| IDR available | Yes | No |
| PSLF eligible | Yes | No |
| Forgiveness options | Yes | No |
| May lower rate | No | Yes |
Only consider refinancing if you won't use federal benefits.
Loans Eligible for Consolidation
Can Be Consolidated
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans
- FFEL Subsidized Loans
- FFEL Unsubsidized Loans
- FFEL PLUS Loans
- Federal Perkins Loans
- Some health profession loans
Cannot Be Consolidated
- Private student loans
- State education loans
- Institutional loans
The Consolidation Process
- Go to StudentAid.gov
- Log in with FSA ID
- Select "Complete Consolidation Loan Application"
- Choose which loans to consolidate
- Select new repayment plan
- Review and submit application
- Continue paying current loans until consolidation complete
Processing typically takes 30-60 days.
Choosing a Repayment Plan
During consolidation, select new repayment plan:
- Standard: Fixed payments, 10-30 years based on balance
- Graduated: Payments increase over time
- Extended: Lower payments over longer term
- IDR: Income-based payments with forgiveness
Interest Rate Calculation
Your consolidation rate:
- Weighted average of all consolidated loans
- Rounded up to nearest 1/8%
- Fixed for life of loan
- Capped at 8.25%
Example: If you have loans at 5%, 6%, and 7%, the consolidation rate will be slightly above your weighted average.
Special Considerations
Married Couples
Spousal consolidation is no longer available. Each spouse must manage their own loans separately.
Defaulted Loans
Consolidation can remove loans from default, but requires either:
- Making three consecutive reasonable payments, or
- Agreeing to repay under IDR plan
Apply at StudentAid.gov
