The Pros and Cons of Consolidating Your Loans

If college graduation is on the horizon and with it the need to begin repaying your student loans, you might want to consider consolidating your loans, which is basically combining multiple loans into a single loan so you have one loan and one monthly payment.

Remember—there are many different types of loans, and there’s a big difference between federal loans (those that are issued by the U.S. Department of Education) and private loans taken out through a bank, credit union or other lending institution. The federal government allows you to consolidate federal loans into what is known as a Direct Consolidation Loan at no cost, so if someone offers to do so for a fee, walk away quickly.

Most federal student loans—such as Direct Subsidized and Unsubsidized Loans, Perkins Loans, Subsidized and Unsubsidized Stafford Loans, and some others—can be consolidated. However—and this is important—private loans cannot be part of the federal loan consolidation. If you have both types of loans, some private lenders offer consolidation that could include your federal loans, but think carefully before going down that road. The interest rates could be much higher and you many lose any cancellation, deferment or other benefits associated with your federal loans; you cannot “undo” the consolidation once it’s done. Keep in mind that when you consolidate loans, your old loans are actually paid off and the lender issues you a new loan, usually with an extended repayment schedule anywhere from 15 to 30 years. It might be better to keep your federal and private loan separate, even if it means having to make more than one payment per month.

With regard to federal loan consolidation, here are a few things to keep in mind:


  • Simplicity—you will only have one federal loan payment and one loan servicing institution to deal with.
  • Fixed interest rate—a consolidated federal loan has a fixed interest rate for life, based on a weighted average of the interest rates on all the loans that are being consolidated.
  • Lower payments—there are a variety of repayment plans, most of which extend the term of the loans from the standard 10 years to 15 to 30 years. A longer term lowers the monthly payment considerably, making it more affordable.
  • Multiple repayment plans—you can pick from several options and can switch repayment plans at any time. Some plans are income-driven, such as the Pay as You Earn plan, and include forgiveness provisions if loan is not paid off by the end of the repayment term.


  • Higher total cost—increasing the repayment period means you will pay more interest over time than you would have if you remained in the standard 10-year plan. Be sure to estimate the total amount you will pay back under either scenario before making your decision.
  • Loss of benefits—some federal loans may have added benefits such as interest rate discounts, principal rebates and cancellation benefits that you will lose if you consolidate.

Before deciding to apply for a loan consolidation, be sure to review all your options and contact the Loan Consolidation Information Call Center at 1-800-557-7392.

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