How to Consolidate Student Loans

To consolidate student loans, students submit an application to the United States Department of Education for direct loan consolidation. This helps them consolidate all student loans into one.

A direct loan consolidation allows students to roll their federal student loan payments in to one overall loan. One of the main advantages with this approach is it provides students with a fixed-interest loan, which may mean students pay less in interest with the consolidated loan than if they were paying interest rates on all of their student loans. It also makes payments easier and more predictable, as students can repay the loan one time each month instead of making multiple monthly payments as they would with multiple loans.

With a single loan to pay off, students may be eligible for other loan repayment plans and even loan forgiveness programs, notes Federal Student Aid, which is a unit within the U.S. Department of Education. When considering applying for a student loan consolidation, students should be aware that there is no fee associated with submitting an application to the U.S. Department of Education, explains Federal Student Aid, which adds that students may be contacted by third parties who offer to help them consolidate their student loans but attach a fee to those services.

Pros and Cons of Loan Consolidation
As with other types of loans, students should consider their personal situations when deciding whether to consolidate their student loans, notes Federal Student Aid. Student loan consolidations have some advantages and disadvantages that are worth keeping in mind. Payments become more uniform, meaning they can be paid every 30 days. Also, consolidated loans can make interest rates become fixed rates, even if they were previously variable, according to Student Loan Hero. This makes future interest rates more predictable and potentially lower than they were with individualized plans.

With the exception of Direct Loans, students may have access to income-based payment plans and public service student loan forgiveness that they would not have otherwise been able to secure without a consolidated loan, note authors at Federal Student Aid. However, there are also some negative factors associated with consolidating loans. Students should note that while consolidating loans might open doors for some types of loan forgiveness programs, they may also lose certain benefits associated with the individual loan payment plans, explains Federal Student Aid. This can include a variety of benefits such as cancellation policies, principle rate deductions and lowered interest rates. Also, consolidating student loans often extends the amount of time students have to repay their loans. This can drive up interest rates and, in turn, make the loans more expensive than they would have been without consolidating them. An extended interest payment period also results in more payments, which increases the risk of forgetting to make a scheduled payment.

Alternatives to Consolidation
Students should keep in mind that while some aspects of their loans may change following loan consolidation, they are still bound by certain terms and conditions. Borrowers will be expected to make their payments on time and in full. If they don't, they may suffer financial penalties. Failure to make the requisite payments can also result in a negative impact on the student's credit rating, as loan payments are tracked by the federal government. Students on the fence about loan consolidation can also consider other loan payment alternatives such as deferment.