Federal Student Loan Consolidation

What is Student Loan Consolidation?

You can simplify paying off your federal student loans by combining them into one Direct Consolidation Loan. Keep in mind, this option is only for federal loans. If you have private loans or a mix of federal and private loans, you’ll need to look into refinancing with a private lender instead.

What Types of Student Loans Can Be Consolidated?

When exploring a new Direct Consolidation Loan it’s important to note that this option is only available for federal student loans only. If you have all private loans or a mix of both private loans and federal loans, the best option would be to look into student loan refinancing through a private loan lender.

Student loans eligible for a Direct Consolidation Loan include:

• Subsidized student loans
• Unsubsidized student loans
• Parent PLUS Loans
• Grad PLUS Loans
• Perkins Loans

Student Loan Consolidation Rates

Unlike private student loan refinancing, where you may compare lenders and shop around for the best interest rate, a Direct Consolidation Loan will use the weighted average interest rate of your existing loans rounded up to the nearest 1/8 of a percent to determine your new interest rate. That means, your rate will stay roughly the same. You can learn how weighted average interest is calculated here. We also recommend using our student loan refinance calculator to get a snapshot of what to expect when you consolidate.

If your aim is to lower your interest rate, you will want to pursue private student loan refinance.

Should I Consolidate My Student Loans?

Whether or not you should pursue a new direct consolidation loan depends on what you want to achieve. Here are some of the reasons you may want to consolidate your federal student loans.

Benefits of Consolidating Federal Student Loans

• A single monthly payment will streamline new direct consolidation loan repayment.
• Consolidation of federal student aid provides access to alternate loan consolidation repayment plans that can reduce the monthly federal loan payment by increasing the term of the loan. This can free up money to repay loans with higher interest rates, such as credit cards, that also do not provide tax-deductible interest.
• If you have FFELP loans which are not eligible for certain income-driven repayment plans, military benefits, or public service loan forgiveness, you can consolidate these federal loans into a new Direct Consolidation Loan to become eligible.
• If you are interested in Public Service Loan Forgiveness and you do not have federal Direct Loans, you will need to move your existing federal student loans into a new Direct Loan program through consolidation.
• Depending on your outstanding federal education loan debt balance, you can increase your federal education loan term by consolidating, which also means you will have a lower monthly payment with a new direct consolidation loan.
• A consolidation loan may be used to switch federal loan servicers if you don’t like your current federal loan servicer.

Drawbacks to Consolidating Student Loans

• Your goal is to lower your federal loan interest rate, consolidating fixed-rate federal student loans does not save you any money, since the interest rate on a federal consolidation loan is based on the weighted average of the interest rates on the student loans included in direct loan consolidation. It may even increase the costs slightly since the weighted average interest rate of a new direct consolidation loan is rounded up to the nearest 1/8th of a point. If your goal is to lower your interest rate, you should consider refinancing your federal student loan(s) with a private student loan refinance lender.
• While direct loan consolidation may yield a lower monthly payment because of a longer repayment term, a longer repayment term may cause you to pay more interest over the life of the loan. Some borrowers are tempted to choose the repayment plan with the lowest monthly payment, even when they can afford to make a higher monthly payment on their student loans. Choosing a longer repayment term also often means that you may still be repaying your student loans when your children are applying for their own federal student aid because the repayment term can be as long as 30 years.
• If the interest rates on the separate student loans differ significantly, you may be able to save money by accelerating repayment of the federal education loans with the highest interest rate. You cannot target the highest-rate student loans for early repayment if the student loans have been consolidated.
• If you have yet to exhaust the entire grace period on your student loans, and you decide to consolidate them, you will lose the remainder of your grace period immediately. Direct Consolidation Loans do not have a grace period and will enter repayment immediately after the consolidation is complete.
• And outstanding unpaid interest is capitalized when federal education loans are consolidated. You will increase your outstanding principal balance on your loans once interest is capitalized.

Perkins Student Loans lose several important benefits when they are included in a consolidation loan. If you include a federal Perkins Loan in your Direct Consolidation, your Perkins Loan funds will no longer be considered a subsidized loan, and you would no longer be eligible for federal Perkins Loan cancellation options. Perkins Loan cancellation (otherwise known as forgiveness) is known to be generous and offered to a variety of borrowers who work in particular occupations.

How to Consolidate Federal Student Loans

To consolidate your federal student loans you will first need to log into your account at studentaid.gov with your FSA ID. There you can complete the Direct Consolidation Loan application. You will need the following information for a new Direct Consolidation Loan application:

• FSA ID
• Personal information such as personal address, email address and phone number
• Financial information such as income

You will be able to complete the Direct Consolidation Loan application in roughly 30 minutes or fewer online. If you do not want to apply for a new Direct Consolidation Loan online, paper applications are available for download.

Questions to Ask When Consolidating Federal Student Loans

Will I lose credit toward existing repayment plans on my federal loans?

Yes. When you consolidate your federal loans it will resent your payments for both income-driven repayment plan forgiveness, and Public Service Loan Forgiveness (PSLF). Which essentially means you will lose your “credit” toward public service loan forgiveness and/or income-driven repayment plan forgiveness regarding on those specific student loans you consolidate.

How much does it cost to consolidate federal student loans?

Student loan consolidation is free through the Direct Consolidation Loan program.

Federal Student Loan Consolidation FAQs

Is it smart to consolidate your federal student loans?

Consolidating your student loans may be the right move depending on what you want to accomplish. If you want to reduce your monthly payment by lengthening your repayment term, or roll multiple student loans into one, it may be the right option for you. If you have a Parent PLUS Loan and want to qualify for Public Service Loan Forgiveness, you will need to consolidate your loans and repay the new direct consolidation loan with an income-contingent repayment plan.

Can you consolidate private student loans?

You cannot consolidate private education loans with a new Direct Consolidation Loan because they are not federal student aid. However, you may choose to refinance private education loans—or refinance federal and private student loans together—with a private loan lender.

Can Grad PLUS loans be consolidated?

Yes. Grad PLUS Loans are eligible for a new Direct Consolidation Loan. You may also choose to consolidate your undergraduate and graduate loans together, as long as they are all federal education loans rather than private education loans.

Can you consolidate Parent PLUS Loans?

Yes. Parent PLUS Loans are eligible for consolidation, by their borrower, the parent. If the parent has their own student loans, they may include these loans in the consolidation.

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¹Fixed rates range from 4.49% APR to 9.99% APR with 0.25% autopay discount and 0.25% direct deposit discount. Variable rates range from 5.99% APR to 9.99% APR with 0.25% autopay discount and 0.25% direct deposit discount. Unless required to be lower to comply with applicable law, Variable Interest rates will never exceed 13.95% (the maximum rate for these loans). SoFi rate ranges are current as of 11/20/24 and are subject to change at any time. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay and Direct Deposit are not required to receive a loan from SoFi. You may pay more interest over the life of the loan if you refinance with an extended term.

0.25% Direct Deposit Discount: Terms and conditions apply. Offer good for Student Loan Refinance (SLR) borrowers that apply for a new SLR on or after 9/17/2024. To be eligible to receive the 0.25% interest rate reduction offer: You must (1) Complete a Student Loan refinance application with SoFi beginning September 17, 2024; (2) Be approved by SoFi for the loan meeting all SoFi’s underwriting criteria; (3) Have either an existing SoFi Checking and Savings account, a SoFi Money cash management account or open a new SoFi Checking and Savings account within 30 days of funding the new loan, AND receive a direct deposit of at least $1,000 to the account within the first 30 days of funding the new loan ("Direct Deposit Account"); (4) Be the primary SLR account holder. If eligible at SoFi’s sole discretion, you will receive this discount during periods in which you have received direct deposits of at least $1,000 every 30 days to a Direct Deposit Account. This discount will be removed during periods in which SoFi determines you have not received at least $1,000 every 30 days in direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to obtain a Loan. This discount lowers your interest rate but does not change the amount of your monthly payment. SoFi reserves the right to change or terminate this Rate Discount Program to unenrolled participants at any time without notice.

The child who benefitted from the loan can not include parent PLUS Loans that they are not the listed borrower of, in a consolidation loan under their name. In other words, the debt can’t be transferred to the child in the federal student loan program. However, some private student refinance lenders will allow parents to transfer their debt to their child with a private education loan refinance loan. The child would need to qualify for the refinance loan on their own.

Can you consolidate Parent PLUS Loans with student loans?

Yes. If you as the parent have Parent PLUS Loans as well as your own student loans you may consolidate those together. You may not consolidate Parent PLUS Loans with federal student loans borrowed in your child’s name. Those loans would need to be consolidated separately by your child.

Can you consolidate federal student loans?

Yes. In fact, the Direct Consolidation Loan is specifically for consolidating federal student loans.

Can my spouse and I consolidate student loans?

No. You may not consolidate federal student loans with your spouse through the Direct Consolidation Loan program, however some private lenders such as PenFed will allow you to consolidate your student loans with your spouse via a private student loan refinance.

Are consolidated student loans eligible for forgiveness?

If you have a new Direct Consolidation Loan, your loan could be eligible for Public Service Loan Forgiveness you if you meet all the required eligibility criteria. Federal consolidation loans also qualify for all federal discharge options, which includes, discharge upon death of the borrower (or child who benefitted from the loan), or total and permanent disability.

How to consolidate student loans for a lower interest rate

If you’re looking to lower your interest rate, you will want to consolidate your student loans with a private lender (referred to as student loan refinance). Private education loan refinancing allows you to shop around for the best interest rate.

How do I find my student loan account number?

Log into studentaid.gov with your FSA ID to locate information related to your federal education loans. There you will be able to see all of your current federal student loans, balances and the student loan servicers. You can also log into your student loan portal with your student loan servicer, or you can check your federal student loan statement.

When can I consolidate my student loans?

You may fill out a direct consolidation loan application at any time once they have entered the grace period, however if you consolidate student loans before the end of your six-month grace period, you will need to begin repaying your consolidation loan right away.