Complete Guide for Student Loan Consolidation (Government and Direct Loan)

The New York Federal Reserve Board estimates that over 37 million people have federal student loans and direct loan debt, totaling over $1 trillion.

Complete Guide for Student Loan Consolidation

This student loan debt can come in many forms, with some students and graduates having more than 10 different types of loans.

These loans can be federal or private and may come with completely different interest rates.

Managing all of these loans can be a daunting task when you’re also trying to manage a career, living on your own for the first time, or possibly realizing how many other bills you’ll also need to pay.

All of these factors lead many borrowers to consider student loan consolidation.

Advantages of Consolidating Your Student Loans

Loan consolidation takes all existing loans and rolls them into one.

This can make payments much easier to manage and may leave you with a lower interest rate than your previous loans.

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It also usually leaves borrowers with a lower monthly payment by extending the length of the loan.

Factors to Consider

Consolidation loans can seem like the perfect solution, but before you move forward, you should be aware that extending the length of the loan also usually increases the total amount you pay overall.  

This doesn’t necessarily mean it’s a bad idea, but it’s not something you want to overlook and if you are able to afford your current monthly payments you probably should not consolidate your loans.  

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Right Choice for You?

Keeping all of the above in mind, there are a few different reasons that student loan consolidation could be the right choice for you:  

  • If you cannot afford your monthly payments. Students leaving college these days may find themselves shocked by the reality of the job market.  Some may struggle to find a job that pays what they want, while others may just struggle to find any job.

    This leaves many students with large loan payments that they just cannot afford to pay.

    If you are reaching a point where you worry you will default on your loan, then you should consider consolidating your loan to extend the time you have to pay so that each monthly payment is lower.

  • If you can get a much lower rate.  Depending on when you took out your student loans, you may have a very high interest rate or a variable rate that changes over time.

    Both of these scenarios could mean that a loan consolidation is in your best interest.

    Locking in on a lower interest rate could shrink your monthly payments or save you money in the long run depending on the time you agree to pay your loan back.

  • If you want to be eligible for Student Loan Forgiveness.  Student Loan Forgiveness programs are offered for certain borrowers that qualify under specific criteria, including the type of federal loan you have. 

    Federal Family Education Loans are one of the most common federal loans that do not qualify, so consolidation is necessary for those borrowers.

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    Student Loan Forgiveness programs are not offered to everyone, so you should make sure you qualify first if this is the only reason you are considering consolidation.

  • If you want to free a consigner from liability.  If you have private loans, you may have needed a cosigner on the original loan, which holds them responsible for paying off the debt if you don’t.  

    As you begin making your payments and paying other bills, you may raise your credit score high enough to consolidate your loans to one that does not require a cosigner.

When you’re ready to make the move and consolidate student loans, you first need to evaluate which of your loans are federal and which are private.  

Private loans cannot be consolidated into federal loans, so you may need to consider two separate loan consolidations.


Federal Loan Consolidation

Applying for federal student loan consolidation, called a Direct Consolidation Loan, is fairly straightforward and most federal loans will qualify.  

If you have no defaulted student loans that are in the collection process, then you can fill out an application on

If you have defaulted student loans that are already in the collection process, then you will need to fill out a separate application.

Both applications will allow you to apply for an income-based repayment plan. This is a huge benefit that federal direct loan consolidation programs offer that private lenders typically do not.

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These plans are only eligible to those that can prove financial hardship and once accepted your payments will be based on a percentage of your monthly income.

It is important to note that you are only eligible for a Direct Consolidation Loan once, so make sure you will not need another consolidation in the future.

Private Loan Consolidation

Private loan consolidation is the only option for students that took out private student loans.

There are two additional factors to consider when looking into private loan consolidation. Unlike federal loan programs, private lenders take your credit score into account when deciding what type of interest rate to give you.  

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This means that if your credit score becomes significantly better while you’re paying off your loans, you may be able to get a much lower interest rate which could actually save you money in the end.  Another factor to consider is whether there was a cosigner on the original loan.  

If you have developed your own credit since the inception of your loan, you may be able to consolidate to a loan that does not require a consigner, which would free them from the liability that is attached to cosigning a loan.

Lenders that Offer Consolidation Programs

According to, the following lenders offer student loan consolidation for private student loans:

  • Cedar Education Lending
  • cuStudentLoans
  • Chase
  • BND Student Loan Services
  • Next Student
  • StudentLoan Consolidator
  • WellsFargo

Qualifications / Requirements

The qualifications to receive loan consolidation vary by lender, so you need to research them thoroughly, but the process is similar to taking out a mortgage.

Most lenders will consider the following factors in their decision to consolidate loans, as well as what interest rate to give you:

  • Total amount of loans to be consolidated. Many lenders require a minimum threshold of loans that are going to be consolidated, so if you are towards the end of your loan payments or have a small loan amount, you may not be eligible.
  • Credit score. Your credit score is a very important factor in determining your interest rate, so you will want to make sure you’ve done what you can to improve your score before you apply for loan consolidation.
  • Student’s debt to income ratio. Most lenders do not want borrowers to have more debt than what would equal 45% of their monthly income, including debt coming from other sources (car payments, mortgages, etc).
  • Monthly income. Lenders will look at your monthly income as an indicator of how reliably you will be able to pay your loan payment each month.
  • Proof of completion of a degree. Some lenders require this proof to acknowledge that you’ve completed the schooling that the original loans were taken out for.

When you are considering a private loan consolidation, it is important to read the fine print.

You want to make sure that there are no hidden fees or variable interest rates.  It is also important to make sure there is no penalty for paying off your total loan early.

For the right candidate, loan consolidation can mean the difference between paying the bills and defaulting on existing loans (student or other).

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While consolidation is not for everyone, if you are struggling to meet your monthly payments, you should consider this as an option.

Federal consolidation programs can be especially enticing to those that could qualify for student loan forgiveness programs.  In the end, you have your education in your pocket, so don’t let your loans control your future decisions.

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MarketConsensus Contributor: Nikki Schilling | Editor: Ogbe Airiodion