Student Loan Consolidation

It’s common to graduate with four, eight, or even a dozen student loans from a handful of lenders. Even if most of them are from the same two or three service companies, each loan may have a different interest rate and due date. Talk about intimidating!

And then you get a mailing or a phone call. Consolidate all those student loans into one low payment! Student loan consolidation sure is tempting. But is it wise?

What is Student Loan Consolidation?

Student loan consolidation is taking one or more student loans and repackaging them into one loan with one fixed interest rate and one payment. There are consolidation options available for both federal student loans (Stafford, Perkins, and PLUS loans), as well as private student loans.

Most student loan consolidation programs are completely legitimate and may, in fact, make it easier to manage your student loan debt. That said, many consolidation programs market benefits that are misleading. Before consolidating student loans, make sure you have all the facts.

The Benefits of Consolidation

Consolidation can allow you to make one payment for all of your student loans. That’s far easier than making several payments and remembering different due dates. Not only will you save time and frustration, you’ll be less likely to accidentally miss a payment and incur fees and/or a negative mark on your credit report. Note: If you have both federal and private loans, don’t consolidate them together; you’ll likely end up paying a higher interest rate on your federal loans than necessary.

Student loan consolidation can lower your monthly payment. If you’re struggling to make your student loan payments, consolidating can lower you monthly payment. But watch out! Lowering your payment means extending your repayment period from 10 years to 15, 20, or even 30 years. The longer you take to repay the loans, the more interest you’ll pay, although you can always start to pay down your loan balance faster when you’re earning more.

Consolidation gets you a fixed interest rate. Most student loan consolidation programs move loans with a variable interest rate into a loan with a fixed interest rate. If you still have variable-rate student loans, this may save you money over time if interest rates get higher. Note, however, that all federal loans disbursed after July 2006 and all Perkins loans already have fixed interest rates, somewhat negating this benefit.

No credit check for federal consolidation. There are no credit requirements for federal student loan consolidation.

Consolidation Pitfalls

Don’t consolidate until after you graduate. It’s wise to wait until after graduating to consolidate your student loans. Of course, you want to make sure you include all your loans in the program. But you also want to make sure you don’t give up one of the biggest perks of subsidized federal loans—interest does not accumulate while you are in school or during your grace period.

Be careful with Perkins loans. Perkins loans have unique benefits like a fixed five percent interest rate, nine-month grace period, and a forgiveness program for qualifying teachers and Peace Corps volunteers. If you consolidate, you may lose some of these benefits.

Don’t trust every offer. Your best bet is to pursue consolidation through one of your existing loan service providers or a company recommended by your financial aid office. If you have Direct loans, visit

Be wary of consolidating loans jointly. Two benefits of federal student loans are:

  • You can defer them if you become unemployed and
  • they are canceled if you die.

If you and your spouse consolidate both of your student loans and one of you becomes unemployed, you won’t qualify for deferment (you’d both need to be out of work). Similarly, if one of you were to die, the other spouse is still required to repay the loan.

What about you? If you have consolidated student loans or considered consolidation and chose not to, please share your experience in a comment. What would you recommend?

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


  1. I consolidated about $92K of Stafford loans from my graduate work. I’d recommend submitting for consolidation two months before the end of your grace period, as they take that long to process – I submitted near the very end of my grace period and ended up having to make the payments for 2 months while I was waiting for the consolidation paperwork to go through. I’d not budgeted for that and it was very frustrating.