If you’ve taken out multiple student loans to pay your way through school, you likely have a handful of payments to make each month, with different interest rates or from different providers.
Student loan consolidation is an easy way to boil those bills down into only one or two.
Consolidating your loans simply means gathering all of them into one new loan, with one interest rate, requiring one payment.
When Brendon McQueen, the founder of student loan debt management app Tuition.io, graduated in 2009, he was paying seven separate loans. Since then, he’s consolidated his public loans (but left his low-interest private loans alone), narrowing seven payments a month down to three.
Aside from reducing the number of bills you need to pay each month, there’s another potential advantage to consolidating: It can reduce your monthly payment.
It is important to note that consolidating won’t necessarily reduce your overall payment. When you swap your existing loans for a new, consolidated loan, you might extend the repayment period, which reduces your immediate payments but means you’ll ultimately pay more over the life of the loan.
Whether consolidation is advantageous really depends on your situation. If you’re overwhelmed by paying more than one lender, or if you’re able to get a lower interest rate that’s more manageable with your current situation, consolidation might be a good option for you. Bear in mind, though, that since consolidating your loans means swapping them for a new one, that new loan may have different terms than the ones you have now — so be sure to understand exactly how it will work before making your consolidation official.
If you choose to go this route, there’s one key question you should ask: Are you holding public (federal) loans, private loans, or both?
Think of public and private as two wheels on a bicycle: They work together to keep you riding, but they’re independent parts, spinning on their own. It’s the same for consolidation.
Consolidating public loans can be done through what’s called a “direct consolidation loan.” A list of loans eligible for direct consolidation is available at Studentaid.ed.gov.
“On the federal consolidation side, they take a blended average of your existing interest rates and fold them up into a single federal loan,” explains McQueen. “In certain instances, if you have a loan with an incredibly low interest rate, you may not choose to include that loan in your consolidation package because it would affect the interest.” He also points out that once your loan is altered under direct consolidation, it’s open to federal repayment options like PAYE (Pay As You Earn), one of the government’s income-based payment plans.
To apply to consolidate your public loans, visit Studentloans.gov.
In this case, “private” refers both to the type of loans you’re consolidating and the bank doing the consolidation. Public and private loans can’t be combined into one single loan, but a private lender will be able to consolidate your remaining loans for you. To determine your interest rate, though, the lender won’t be using a blended average like with public loans. Instead, your rate will be based on indications of financial responsibility like your credit score.
FinAid.org lists a handful of lenders who may be able to help consolidate private loans.