In the United States, the Federal Student Loan Program (FDLP) includes consolidation loans that allow students to consolidate Stafford, PLUS and Federal Perkins Loans loans into one debt. This results in a reduction of monthly repayments and a longer repayment period of the loan. Unlike other loans, consolidation loans have a fixed interest rate throughout the loan period. Can federal student loans be consolidated?
Federal loans
Most student loans are government loans. Since 2010, most of these loans have been granted directly by the government. This is called a direct loan program. There are also many older loans from private lenders, but guaranteed by the government (also known as federal loans for family education or “FFEL”). Guarantee agencies pay back lenders when borrowers default, and then reinsured by the Department of Education. The National Council for Higher Education Resources Council (NCHER) also has an information sheet with a list of guarantee agencies.
Consolidate private student loans
Private consolidation of student loans or refinancing means replacing many student loans – private, federal or a combination of them – with one new private loan. You will save money if your new loan has a lower interest rate.
Your financial history – including creditworthiness, income, work history and education – will dictate your new interest rate during refinancing. To qualify, you usually need a credit assessment at least in the highs 600 years and rates range from around 2% to over 9%.
Consider refinancing if you have:
- At least a few student loan payments have been made on time after leaving school.
- Good or excellent credit, generally defined as a credit rating of 690 or higher.
- Stable work.
Access a signer with these features if that doesn’t sound like you.
Refinancing federal student loans for a private loan means you lose the consumer protection associated with federal loans. They include the option of linking payments to income and the possibility of canceling the loan.
Should student loans be consolidated?
If you have failed to pay back because you have trouble keeping up with many loan servicers and with many repayment dates, consolidation or refinancing is a good choice. Making one payment every month instead of many payments makes life easier.
You can go through the direct loan consolidation program because it allows you to open the door for income-based repayment options that results in lower monthly payments.
Loan consolidation and loan refinancing
There is an important distinction between “consolidating” a loan and “refinancing” it.
Consolidation involves joining different lenders that are a typical federal student loan and taking out one loan that will pay them back. Because there are nine student loan servicemen – and many of the 44 million borrowers have to deal with several of them – consolidating them into one should make repayment less complicated, if nothing else.
