Student Loan Consolidation - Student Loan

Compare the best rates and save instantly

Make Lemonade helps you save money on your student loans,
personal loans, investing, mortgages, banking, credit cards and more.

Student Loan Consolidation

There are two types of student loan consolidation to which student loan borrowers should pay attention.

Federal Student Loan Consolidation

If you have federal student loans, you may have different types of federal student loans with different due dates and interest rates.

When you have several federal student loan servicers, it can be a lot to manage.

Federal student loan consolidation helps you to organize and manage all of these disparate student loans into a single student loan known as a Direct Consolidation Loan.

In order to proceed with student loan consolidation, you must have a federal direct student loan such as a Stafford Loan.

When you enter student loan consolidation, what exactly happens?

With student loan consolidation, you don’t actually lower your student loan interest rate unfortunately.

Rather,all of your student loans are consolidated into a Direct Consolidation Loan and the resulting interest rate is a weighted average of the interest rates of your existing federal student loans.

For example, let’s assume you have a $12,000 loan at 6.5%, a $10,000 at 5.2% and a $18,000 loan at 4.5%.

Therefore, you have $40,000 of student loans with a weighted average interest rate of 5.93%.

With federal student loan consolidation, the federal government rounds up the weighted average interest of the Direct Consolidation to the nearest 1/8%.

Therefore, the interest rate for your Direct Consolidation Loan would be 6.00%.

So, with student loan consolidation, your interest rate is not lowered. However, you do receive the benefit of paying only one payment to one student loan servicer. It is much easier to organize and repay your student loans with federal student loan consolidation.

Private Student Loan Consolidation

As its names suggests, private student loan consolidation involves consolidation of your private student loans.

How does private student loan consolidation differ from federal student loan consolidation?

While federal student loan consolidation combines your existing student loans into a single student loan with a weighted average interest rate rounded up to the nearest 1/8%, private student loan consolidation takes a different approach.

Private student loan consolidation issues a new student loan and uses the proceeds to repay your existing student loans.

The benefit of private student loan consolidation is that your rate goes down.

Private student loan consolidation also lets you combine both your federal and private student loans together into one student loan, whereas federal student loan consolidation only allows you to combine your federal student loans.

Conclusion

When it comes to student loan consolidation, you have two options.

If you want to organize your federal student loans and pay only one student loan servicer each month, then federal student loan consolidation is a viable option. You also will have access to federal student loan repayment, deferral and forbearance.

If you want to lower your interest rate and combine your federal and private student loans, then private student loan consolidation, also known as student loan refinancing, 

Student Loan Refinance Process

CONSOLIDATE STUDENT LOANS

Why Consolidate Student Loans?

A borrower would consolidate student loans to better organize and manage student loan repayment.

When student loans graduate from college or graduate school, they have multiple options to help manage their student loans.

With federal student loans, they have access to multiple student loan repayment programs, such as PAYE, REPAYE, Income-Based Repayment, Income-Contingent Repayment and other repayment programs.

While repayment programs can be effective short-term solutions, borrowers should recognize that student loan interest will still accrue on their student loans.

How to Consolidate Student Loans

For federal student loans, students who consolidate student loans combine their existing federal student loans into a Direct ConsolidationLoan.

A Direct Consolidation Loan has one interest rate, one monthly payment due date and one student loan servicer.

The benefit of a Direct Consolidation Loan is that it is much easier to organize.

The other benefit is that it preserves access to the aforementioned federal repayment programs as well as deferment and forbearance options should you need more flexibility due to future financial hardship.

When you consolidate student loans, a Direct Consolidation Loan will have an interest rate that is a weighted average interest rate of the existing student loans. The resulting weighted average is rounded up to the nearest 1/8%.

Therefore, it is possible that the final interest rate for a Direct Consolidation Loan will be higher than the weighted average interest rate of the borrower’s existing student loans.

In contrast to federal student loan consolidation, private student loan consolidation does lower the interest rates on both private and federal student loans.

Consolidate Student Loans With A Private Lender

When a borrower wants to consolidate student loans with a private student loan lender, the borrower receives a new student loan, which is used to repay the previous federal and private student loans.

The new student loan has a lower interest rate, lower monthly payment and single student loan servicer.

A borrower who decides to consolidate student loans with a private lender will give up certain borrower protections such as access to federal repayment programs, deferral and forbearance.

However, the lower interest rate and lower monthly payment can more than justify the tradeoff and result in faster student loan repayment.

Compare the best rates and save instantly

Compare the best rates and save instantly

Student Loan Consolidation

Student loan consolidation comes in two forms: consolidation of federal loans into a Direct Consolidation Loan and private student loan consolidation. Make Lemonade has some solid analysis on the similarities and differences between each type of student loan consolidation. The important thing to remember are your goals and whether you want to combine only your federal student loans or want more flexibility to consolidate both your federal and private student loans.

Consolidate Student Loans

If you would like to consolidate student loans with the federal government, Make Lemonade has a helpful student loan calculator that shows you the differences when you consolidate student loans and refinance student loans. Interestingly, you save more money when you refinance student loans because your interest rate and monthly payment decreases. When you consolidate student loans, your interest rate doesn’t decrease, but is a weighted average of your existing student loan debt interest rates.

Private Student Loan Consolidation

One of the benefits of private student loan consolidation is that the borrower can refinance student loans that are both private and federal. This is different from student loan consolidation with the federal government in which the borrower can only consolidate federal student loans. Therefore, private student loan consolidation has more flexibility than student loan consolidation with the federal government, even if the latter offers forbearance and deferrals.