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  • 4m.

    The Pros And Cons Of Student Loan Consolidation

    Consolidating your federal student loans can simplify your repayment experience and decrease how much you pay each month; however, it can also increase how much you repay overall.
    By Ashley Norwood - Updated: April 18, 2016

    What You'll Learn

    • How to calculate Consolidation loan interest rates.
    • Benefits you may gain or lose by consolidating.
    • Where to consolidate your federal student loans.
    someone holding a balance scale

    If you're currently repaying your student loans, you may have identified some problems with the process. (Besides the "parting with your money," that is.) If you're having trouble staying organized or are worried about missing one of your five loan payments, you have an option that may simplify things for you: consolidation.

    When you consolidate, you essentially take out a new loan that pays off all of your other loans. This makes life easier because you only have to make one payment to one servicer for your federal student loans. And while that's a great help to many, consolidation can come with many cons to balance out these pros.

    You May Pay More

    Consolidation makes your repayment term longer. The length will depend on how much you consolidate (see below). This decreases your monthly payments but likely increases how much you pay overall (as you pay significantly more in interest over the lifetime of the loan).

    How Much You Consolidated

    Your New Repayment Period


    12 years


    15 years


    20 years


    25 years

    $60,000 and up

    30 years

    If you are going to consolidate, you should probably do it during your first year or two of repayment; otherwise, it might not be worth it. Remember, your Consolidation loan is a new loan, not an extension of your older loans. So, the longer you wait to consolidate, the longer you will pay off your student loans.

    Your Interest Rate Won't Change

    If your loans have variable interest rates, consolidation will lock your loan into a single rate for the rest of your repayment term. That is great if the rates go up. Unfortunately, if the rates go down, your loan will be more expensive than it would have been otherwise.

    If your interest rates are already fixed, you won't get a lower rate by consolidating—even if it appears that way. Consolidation interest rates take the weighted average of the rates on your underlying loans, then round that number up to the nearest 1/8th of a percent. So, it all balances out.

    Many borrowers confuse consolidating with refinancing loans at a lower interest rate. However, you cannot refinance federal student loans at a new interest rate and keep them in the federal student loan program.

    You May Lose Some Benefits

    Some benefits, such as some Perkins loan forgiveness programs, are lost once you consolidate those loans. You may gain access to other perks through consolidation, like Public Student Loan Forgiveness and some income-driven repayment (IDR) plans (new income-based repayment, Pay As You Earn, and Revised Pay As You Earn), you may gain access to through consolidation.

    Just remember that any payments made toward the underlying loans do not count toward PSLF or forgiveness under the IDR plans. You'll need to start all over again. It's important to know all these details when you make your decision, because you can't undo a Consolidation loan once it's in place.

    How To Consolidate Your Loans

    In the end, consolidation may help you. On one hand, you'll only make one payment per month, your payments may go down, and it may make you eligible for loan forgiveness. On the other hand, your loan will likely become more expensive overall and you'll pay it off over a longer period of time.

    If you've decided consolidation is right for you, you can start the process for your federal student loans at This site links up with the National Student Loan Data System (NSLDS®) to pull all of your student loans automatically into your Consolidation loan. To keep a loan out of your Consolidation loan (like a Perkins loan), you have to remove it. During this process, you also are able to choose your servicer from the list of current Direct Loan servicers. So, if you're happy with one of these servicers already, you could stay together.

    If you have private student loans, some lenders do offer products that allow you to consolidate them, potentially at a lower interest rate. Note that if you consolidate federal loans with private loans, you will lose all the benefits of your federal loans (postponements, repayment plans, etc.)—not just the options listed above.

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