Juggling the deadlines and varying interest rates of multiple student loans can be a hassle. Student loan consolidation is a process that simplifies your loan repayment with a single loan and just 1 monthly bill.
There are 2 types of student loan consolidations: federal and private. Federal student loan consolidation is carried out by the U.S. Department of Education and combines only federal student loans. Private student loan consolidation, or refinancing, is carried out by private lenders and combines private loans or a mix of federal and private loans into 1 private loan.
Check out our guide to learn everything you need to know about student loan consolidation.
Consolidating Private Student Loans
When you start private student loan consolidation through private lenders, you are refinancing your loans. You combine your loans, whether federal or private, to receive a lower interest rate and reduce monthly payment terms.
Here are the steps you can follow to refinance your private student loan:
1. Choose a Lender
There are many financial institutions that consolidate your student loans — banks, credit unions, and lenders that specialize in these types of loans. The well-known names include LendKey, Credible and SoFi.
Fixed rates range from 5.24% APR to 9.99% APR with 0.25% autopay discount. Variable rates range from 6.24% APR to 9.99% APR with a 0.25% autopay
discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 13.95% APR; 15- and 20-
year terms are capped at 13.95% APR. SoFi rate ranges are current as of 02/06/24 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 is 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.
2. Get pre-qualified online.
Most lenders allow you to find out if you’ve pre-qualified before you complete the full application.
3. Select your rate and term.
You can choose between saving on your monthly payment or saving on total student loan interest.
4. Sign and accept your new loan.
In your application, you’ll have to provide documents such as proof of citizenship, identity and income along with university information, tuition and financial aid details. You can usually upload screenshots of your information and sign your paperwork electronically.
Best Lenders for Consolidating Student Loans
There are many lenders that specialize in consolidating student loans. You may have a choice between a fixed or a variable interest rate. Fixed interest rates remain the same throughout the tenure of the loan. A variable interest rate will increase or decrease over time depending on economic conditions.
Take a look at our recommended lenders that offer some of the lowest interest rates.
Fixed rates range from 5.24% APR to 9.99% APR with 0.25% autopay discount. Variable rates range from 6.24% APR to 9.99% APR with a 0.25% autopay
discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 13.95% APR; 15- and 20-
year terms are capped at 13.95% APR. SoFi rate ranges are current as of 02/06/24 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 is 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.
Qualifying for Student Loan Consolidation
Every private lender has different requirements to apply for a student loan consolidation. Make sure you check if you prequalify with the lender before you submit your application. The common criteria include:
Age
Some lenders require you to be at least 18 years of age. Others require you to be at least the age of majority in your state with the ability to enter into a binding contract.
Citizenship
Most lenders require you to be a U.S. citizen, permanent resident or visa holder with valid proof. If you’re a non-permanent resident who does not have a valid visa, you will need to apply with a creditworthy cosigner who is a U.S. citizen or a permanent resident.
Residency
Residency can be important to some lenders as they might be authorized to offer loans only in certain states.
Education
Some lenders are particular about degrees or school qualification levels. Lenders will often require you to attend a Title IV school, which means your school processes federal student aid.
Credit Check
Credit scores and income are very important to lenders. Lenders typically require high credit scores and will have a minimum income requirement. Higher scores and incomes tend to get the best rates or higher borrowing amounts.
Consolidation vs. Refinancing
Student loan consolidation and refinancing may seem similar, but they are fundamentally different. Each strategy has its benefits.
Take a look at the major differences between loan consolidation and loan refinancing.
| Student Loan Consolidation | Student Loan Refinancing | |
|---|---|---|
| What it is | Combines multiple federal student loans into a single loan | Combines all existing student loans (federal and private) into a single loan |
| Number of payments in a month | 1 | 1 |
| Interest rate | Can’t lower or increase the interest rate | Can lower the interest rate to reduce the monthly payment or increase rate to pay loan faster |
| Type of loans available | Limited to only federal loans | Private and federal loans |
| Flexibility | Only fixed interest rate and fixed repayment period | Can choose between fixed and variable interest rates |
| Credit score requirement | Fair credit score | Strong credit score |
| Borrower benefits and protections | Get access to forgiveness programs and loan protections | No benefits or protections |
Consolidating Federal Student Loans
You can consolidate your federal student loan online through the Federal Student Aid website. You can also download and print a paper application for submission by U.S. mail.
Here are the steps that you should take when you apply:
- Gather the documents listed in the “What do I need” section before you start
- Enter the loans that you want to consolidate
- Choose a repayment plan
- Read the terms
- Submit application
After you submit your application, the consolidation servicer you selected will complete the actions required to consolidate your eligible loans.
Continue making payments on the loans until your consolidation servicer tells you that they have been paid off by your new Direct Consolidation Loan.
When to Consolidate Federal Student Loans
You can consolidate your federal student loans after you leave school or graduate, leave school or drop below half-time enrollment.
There are many reasons why you might consolidate your federal loans. Here are some to consider:
Streamline Payments
You have multiple federal student loans that are with different loan servicers and want to combine it into a single loan with just 1 monthly bill.
For example, you can consolidate 3 loans from different loan servicers and change the 3 separate interest rates to 1 weighted average interest rate. Your interest rate will be rounded to the next ½ percentage. For instance, if your weighted average is 7.41% then it will be rounded up to 7.5%.
Increase in Repayment Term
You want to lower your monthly payment by getting a longer period of time (ranging from 10 to 30 years) to repay your loans.
Federal Benefits and Protection
You can get access to Public Service Loan Forgiveness (PSLF) and income-driven repayment plan options.
For example, if you want to lower your monthly payment amount but are concerned about the impact of the consolidation, you can consider deferment or forbearance as options for short-term relief. For long-term payment relief, you can get an income-driven repayment plan.
Fixed-Interest Rate
The interest rate remains the same throughout the set period. It gives you a predictable monthly payment, usually for the life of the loan.
Bottom Line
Student loan consolidation is a process that allows you to take out a new loan, which is then used to pay off your student loans. Both federal loan consolidation and private loan consolidation can help you streamline and lower your monthly payment.
If federal loan protections, repayment options and forgiveness programs are important to you, a federal student loan consolidation should be the right fit. If you have an excellent credit score and steady income, consider refinancing your loans through private lenders for better interest rates.
Start with our recommended lenders to consolidate your student loans today.
Lend-Grow
Lend-Grow offers 5-, 10-, 15-, 20- and 25-year student loan refinance terms with fixed rates as low as 2.80% APR and variable rates as low as 1.89% APR.
Lend-Grow pays down your loan, too — 0.10% APR every month for 3 years! Here’s what this means: Lend-Grow deposits 0.10% APR of your loan amount funded each month for up to 3 years (as long as your account is active) with payback rewards.
Lend-Grow deposits the payback reward directly to the loan account you specify at the time of Payback Reward enrollment. Payback reward is not a rate discount and you must continue to meet your full payment obligations with the lender each month.