Rules for Consolidating Your Student Loans: What You Need to Know

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Like most borrowers with student loan debt, you probably have multiple student loans, perhaps different types with several lenders. Managing those loans individually can become unwieldy and even stressful. Or you may need extended time to pay or more payment options.

So, you’re considering consolidating your student loans to have a single loan with one payment. But is this the best solution for you? What should you know before you do? This article, which focuses primarily on federal student loan debt, will help you make the best choice for your situation.

What is student loan consolidation?

Student loan consolidation combines some or all of the federal student loans you obtained in your name into a single loan with a single interest rate. You pay that new loan with the lender through which you consolidated. You can only consolidate one set of loans once, and you cannot consolidate student and parent loans together. The loans can be consolidated separately, but must be consolidated in the name of the actual borrower.

You can consolidate most types of student loan debt. “You may even be able to reconsolidate previously consolidated loans into a new loan consolidation that includes loans obtained since that initial consolidation,” says Reyna Goble, student loan expert, author of “CliffsNotes Graduation Debt: How to Manage Student Loans and Live Your Life” and chief editor of

Federal and private student loan consolidation[AM4]  must usually be done separately, and the latter doesn’t qualify for the lower interest rates available through federal student loan consolidation. In fact, even in cases where your private loans can be consolidated with your federal student loans, it’s not a good idea. In addition to the lower interest rates, private loan consolidation is also not eligible for other superior benefits of federal student loan consolidation, like income-based repayment.

When should I consolidate my student loans?

Obviously, you need to carefully consider your short- and long-term goals, your finances and all of the other available options. And there are times when student loan consolidation is clearly the best choice:

You’re having trouble managing multiple loans from multiple sources. Managing all your student loans can be stressful and may even lead to mistakes like missed payments. If you’re having difficulty managing numerous student loans, consider consolidation. It will give you one loan balance with one lender, a single interest rate and a regular payment date. 

You need more time to pay your loans off. With consolidation, you can participate in a couple of repayment plans beyond the standard plan, which gives borrowers 10 years to repay. Those options extend your time to repay. They include extended and graduated repayment plans. Under extended repayment, you pay a monthly amount, usually determined by the lender, but your time to repay could be from 12 to 30 years, depending on your loan amount. Under graduated repayment, you can get the benefit of an extended payment period, often with lower initial payments. However, your payments increase every two years. Remember, too, extending the time you take to repay your student loans means you pay more interest over the lifetime of the loan. To offset that extra interest, “One way to overcome this is to make extra payments over the course of a year,” advises Beverly Harzog, credit expert whose latest book is “The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free.” “This might seem like a stretch right now, but as your income increases, this strategy helps you pay less interest than you otherwise would pay.”

You need your interest rate to stay the same over the lifetime of the loan. “What consolidation does is average the interest rates of all the loans consolidated and give you a single rate,” says Gobel. That consolidation rate stays the same throughout repayment, but may not be as low as rates on some of your current student loans. This strategy is best for those needing to extend repayment.

You’re pursuing a credit card or other high-interest debt reduction or elimination program. “If you get a lower monthly payment on your consolidated loan, you can take the amount you save and add it to the minimum payment you're making on a credit card,” says Harzog. Once those debts are paid off, you can put freed-up funds toward other debt or your student loan payments. However, warns Gobel, “Avoid increasing your student loan payments on your own if you’re pursing any kind of loan forgiveness. That choice can affect how much is left to forgive.”

When should I NOT consolidate my student loans?

In some cases, you may actually thwart your financial goals by consolidating your loans. Here are a few situations when you should forgo consolidation.

Your income supports current repayment options. Consolidation may actually cost you more in interest over the long term. Again, your consolidation interest rate is the average of rates on all of your loans, not that of the lowest. You are likely to save on interest if you pay them within 10 years. 

You’re pursuing an aggressive student loan repayment plan. Again, if you plan to pay your loans off within five years (or another short time frame), you’ll want to keep your low-interest loans and not raise your overall interest rate through consolidation “Just put extra money each month toward loans that have higher interest rates,” Gobel says.

You may lose the benefits of maintaining your federal loans with the original lender. Lower interest rates, discounts, forgiveness options—many lenders offer these to borrowers who stay with them. Make sure you research what you’ll lose by consolidating your federal loans with another lender.

Your loans are in default. While there have been some big changes in student loan rehabilitation programs for borrowers who default, one thing has not changed. If you consolidate your student loans while you’re in default, that default does not come off your credit record. Instead, establish a 10-month rehabilitation plan and “Just stay the course for 10 months, if possible, and complete rehabilitation,” states Gobel. At the end of that period, the default comes off your credit report.

You still have time left on your grace period. You have six months to start paying your loan after you leave school or go below half time. Use that time to get on your feet financially and weigh all of your repayment options so when repayment begins, you can handle it. In fact, advises Harzog,Don’t consolidate your loans during your grace period, because you’ll lose the rest of that time when repayment starts.”

The final analysis

Now that you know your options, carefully investigate them and determine whether your situation makes consolidation ideal. While Harzog calls this “Good debt that’s an investment in your future as long as you make good choices about schools and a major; it’s not toxic debt like credit cards,” it’s still debt that must be repaid. Consolidation may make it easier for many borrowers, but is not for everyone. Your decision about how you manage this debt can shape your financial future. Get as much help as you need to make an informed decision (you can get it free from the U.S. Department of Education and sites like and make the choice that fits best into your immediate and long-term financial objectives.

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