Student Loan Consolidation

Last updated: February 12, 2013 by

If you have several federal student loans, you may be able to combine — or consolidate — them into one single loan from a single lender.

The primary benefit of consolidation is simplified payments.

Rather than five, ten, or more payments every month, you can consolidate (combine) multiple federal loans into one bigger loan. The result is a single monthly payment instead of multiple payments.

How do I apply?

Consolidating federal student loans is a fairly straightforward process. There are several ways to apply

  1. Apply online at
  2. Download a paper copy of the application and promissory note at the same website
  3. Call 1-800-557-7392 & request an application package be mailed to you

What is the interest rate?

A federal consolidation loan comes with a fixed interest rate for the life of the loan based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped at 8.25%.

For example, if the borrower has $5,000 of Perkins Loans (at 5.0%) and $10,000 of unsubsidized Stafford Loans (at 6.8%), the weighted average is 6.2% which is then rounded up to the nearest 1/8 of a percent, yielding a consolidation loan interest rate of 6.25%.

Aside from a slight increase in the interest rate on the consolidation loan, there is no cost to consolidate your loans. No closing costs, prepayment penalties, or credit checks.

When do I begin repayment?

Repayment of a Consolidation Loan begins immediately upon disbursement of the loan with the first payment due within 60 days. The payback term ranges from 10 to 30 years, depending on the amount of your consolidated loan and the repayment plan you choose.

You may pay your monthly payments using Electronic Debit Account (EDA) – a service that allows your bank to automatically deduct your monthly payment(s) from your checking or savings account.

Not only will this avoid the hassle of writing and mailing checks each month, you could also receive a quarter point (.25%) reduction in your interest rate for repayment periods if you elect to use Electronic Debiting.

Should I consolidate my loans?

While it may make sense to reorganize your loans into a single, more manageable account, make sure you carefully consider whether loan consolidation is the best option for you.

Loan consolidation can simplify loan repayment and lower your monthly payment, but it also can significantly increase the total cost of repaying your loans as you’ll pay more in interest over the life of the loan.

As Mark Kantrowitz, publisher of FinAid, says, if you can afford to make the payments on your loans, consolidation isn’t going to help you [sic]. If, on the other hand, you are having trouble making your monthly payments or think that you will in the future, consolidation can present several alternatives.

Perhaps a better option is to opt for an income-based repayment plan. Under the plan, which is open to anyone with federal loans, the monthly payments are capped at 10% of your income and the remaining debt be forgiven after 20 years.