What is loan consolidation?

Loan consolidation is the result of combining two or more student loans into a single loan. Federal student loan consolidation combines specific student loans into a single loan.

Which loans can be included into a Federal Consolidation?

As long as they are borrowed by the same person, the following loans can be included into a Federal Consolidation Loan.

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Supplemental Loans for Students (SLS)
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Some existing consolidation loans

“Alternative” or “outside” loans cannot be consolidated into a Federal Consolidation. As of July 1, 2006, joint spousal consolidation is no longer offered.

You may also consolidate an existing consolidation loan if at least one other FFELP or Direct loan is included into the existing consolidation.

Why should I consolidate my loans?

The primary reasons a borrower may choose to consolidate student loans are:

  • to lock in a (lower) fixed interest rate for the life of the loan;
  • to simplify loan management with a single lender and one monthly note; and
  • to lower monthly payments.

Consolidation, however, may not benefit everyone. Some issues to consider when considering consolidation are:

  • the possible loss of borrower benefits such as principal or interest rate reduction, grace period, loan forgiveness and deferment options;
  • the increased total payout due to the extended repayment period which is usually determined by the principal amount consolidated; and
  • not all student loan consolidations will generate a lower interest rate (see interest rate calculation information below).

Check with your lender or servicer for benefit details regarding your loan(s).

What is the interest rate on a consolidated loan?

The interest rate is determined by using a weighted average of the interest rates on all of the underlying loans (and rounded up to the nearest one-eighth of a percent). A weighted average is calculated using the following steps.

  1. Multiply the principle balance of each underlying loan by its interest rate.
  2. Add those products together.
  3. Divide that number by the total dollar amounts of the loans used in Step #1. Then round up to the nearest one-eighth of a percent.


  1. Loan A: $2500 X 5.2% = 130
    Loan B: $3500 X 4.4% = 154
    Loan C: $5500 X 6.8% = 374
  2. 130 +154 + 374 = 658
  3. 658/11500 = 5.72% = 5.75% (rounded up to the nearest one-eighth)

Online consolidation calculators, such as the Loan Consolidation Worksheet, are available to help estimate your consolidation interest rate.

You can find lender, interest rate, loan amount and other information pertinent to your specific loan history at the National Student Loan Data System.

When can I complete a Federal Consolidation Loan?

You may consolidate your loans while in the repayment grace period (after you withdraw from school, drop below half-time or graduate), during repayment or deferment. You may not consolidate your loans while you are in school and have not entered into the grace period. It is recommended that you begin your consolidation application at least one month before you wish the consolidation to take effect.

It is important to carefully consider time-related factors and plan accordingly. Normally, you will lose any remaining portion of your grace period once you consolidate. Additionally, because many student loans are charged a variable interest rate set each year by the Federal government, the best time to consolidate is a choice specific to each borrower. Contact your lender or servicer (organizations which collect principal and interest payments and manage financial accounts) for assistance with these issues.

How much does it cost to consolidate my loans?

There are normally no fees charged for Federal loan consolidation.

Who should consolidate my student loans?

Until recently, a borrower could consolidate his or her loans under either the Federal Family Education Loan Program (FFELP) or the Federal Direct Loan Program (FDLP). However, recent legislation has amended the law that governs student loans. Due to this change, consolidation loans first disbursed on or after July 1, 2010, must be made under the FLDP. To find out more information about how to consolidate your loans, please visit the Federal Student Aid loan consolidation webpage.

Where do I go from here?

  • Gather your personal loan information.
    • Individual loans and total debt (NSLDS)
    • Current lender/servicer (NSLDS)
    • Calculate your consolidated loan interest rate and repayment schedule
  • Prioritize your needs and concerns.
    • Interest rate(s)
    • Length of repayment period
    • Deferment/forbearance options
    • Additional borrower incentives
    • Future plans (any circumstance relating to repayment)
  • Ask questions.
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