How Can Consolidating Student Loans Affect Your Credit?

By Jennifer Coates · April 24, 2024 · 7 minute read

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How Can Consolidating Student Loans Affect Your Credit?

The federal Direct Consolidation Loan program can help you manage your federal student loans. However, it also means a new loan account turns up on your credit report. You may be concerned about whether consolidating student loans in this way has a positive or negative impact on your credit. The short answer is that it can indirectly do both, but to varying degrees.

To help you understand exactly how your credit could change, read on. You’ll learn the ins and outs, so you can decide whether consolidating your student loans is the right financial move to make.

Can Student Loan Consolidation Have a Positive Impact on Your Credit Score?

If you are considering ways to better wrangle your debt, you may wonder, “Does consolidating student loans help my credit?”

Good question. Your borrowing activity and repayment habits do impact your credit score. One of the biggest — yet indirect — effects that consolidation has on your credit score is making your payments simpler. Consider these points:

•   Thirty-five percent of your FICO® score is based on your payment history. Making consistent and full monthly payments has the most dramatic impact on your credit score on a day-to-day basis.

•   However, your student debt is likely spread across multiple loans taken out during your years of education. Each of these loans has its own payment amount and due date, making it difficult to manage.

•   A Direct Consolidation Loan can cut through the clutter. It streamlines your repayment experience, which may mean you are less likely to miss a due date or forget a payment altogether. It can set you up for a positive payment history, which is an indirect way that you can see a credit score increase after student loan consolidation.

•   Incidentally, unlike private refinance loans, it will not involve a hard credit inquiry, which usually lowers your credit score a bit for a short period of time.

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Can Student Loan Consolidation Hurt Your Credit Score?

Consolidating student loans can affect your credit score in a negative way, too. Can consolidating student loan debt hurt your credit score? To some extent, it might.

Here’s a closer look:

•   Fifteen percent of your FICO credit score calculation looks at the length of your credit history. It considers the age of your oldest credit account, like the first student loan you borrowed during your freshman year of school, and the age of your newest account. It also determines the average age of all of your open accounts.

•   Having open accounts that you’re actively repaying helps you build credit over time. Consolidating your original student loans effectively closes those older accounts.

•   This altered length of credit history could result in a less favorable treatment for your score. The impact on your score, however, is lessened over time as you make timely payments toward your consolidated loan.

Federal vs Private Student Loan Consolidation and Credit Score

Federal Direct Consolidation is exclusively a repayment option offered by the US Department of Education. This process doesn’t require a credit check, as noted above, and most federal loans can be consolidated.

In terms of private student loans, they are ineligible for Direct Loan consolidation. However, you can refinance existing federal student loans or private loans with a private lender. Understand these points:

•   If you decide to refinance student loans with a private lender, the process is similar to Direct Loan Consolidation in that it combines existing education loans into one. You can do this both as undergraduate and graduate school loan refinancing.

•   The newly refinanced loan is considered private student debt. It may be for a lower rate than you previously had, or it could offer a lower monthly payment for a longer term. (Note that when you refinance with an extended term, you may pay more interest over the life of the loan.)

•   The refinance lender pays off the student loans you’ve chosen to include and creates a new refinance loan. You’ll repay the refinance lender for the total balance of the combined loan, but at a new rate and repayment terms.

•   It’s important to recognize that when you refinance federal loans as private loans, they will no longer qualify for federal benefits and protection programs, such as deferment and forbearance. For these reasons, it’s wise to carefully consider whether refinancing federal loans is the right option for you.

Alternatives to Student Loan Consolidation

If, after weighing the pros and cons of student loan consolidation, you find it’s not for you, there are other repayment options available.

Income-Driven Repayment

One advantage of a Direct Consolidation Loan is it lets you make smaller monthly installments over a longer term. If, however, you can’t make your monthly federal loan payments for the foreseeable future, ask your servicer about income-driven repayment (IDR).

IDR offers repayment terms of 20 or 25 years, depending on the plan you’re on. Your income, family size, and chosen IDR plan determine what your reduced monthly payment is. For some eligible borrowers, your monthly payment could be as low as $0.

Additionally, if you still have a remaining balance after completing your IDR plan, the balance might qualify for loan forgiveness.

Federal Deferment or Forbearance

If you’re experiencing short-term financial hardship, you might be able to delay your federal student loan payments temporarily. The Department of Education offers deferment and forbearance programs that let you pause your payments without the loan going into default.

Keep in mind that while loans are in deferment, interest might accrue on certain federal loans. If you’ve requested forbearance, interest is charged during this period, regardless of the federal loan you have.

Student Loan Refinancing

Private student loans, mentioned above, aren’t eligible for the two alternatives just described. However, they may be a good solution in some situations. For instance, they might be a helpful option if you have private student loans that you are struggling to pay or have federal student loans and don’t have plans to take advantage of federal benefits (remember, you’ll forfeit those plus other protections).

Since private student loan refinancing requires a credit check, it’s best for borrowers with good credit. A student loan refinance might help you secure a lower interest rate or a lower monthly payment at a different repayment term. Private lenders have their own eligibility requirements, rates, and refinancing offers.

Shop around and try a student loan refinancing calculator to compare your offers and see if refinancing makes sense for you.

The Takeaway

Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.

However, if your main concern is getting relief from high monthly student loan payments, speak to your loan servicer or lender ASAP to see if your loans qualify for other repayment options. In some cases, refinancing with a private lender may be a good decision.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


Can consolidating student loans directly raise your credit score?

No, consolidating your student loans doesn’t directly raise your credit score. It can simplify your monthly payments and possibly reduce your payment amount (though possibly extending your term and charging more interest over the life of the loan). These factors can help you maintain on-time payments, which can help build your score.

Can consolidating student loans directly lower your credit score?

Does student loan consolidation hurt your credit? It might temporarily lower your score: Loan consolidation can add a new open account to your credit record while closing an older one, which negatively affects your average length of credit history. Also, a new private loan can involve a hard credit inquiry, which can temporarily reduce your number.

Are there any indirect effects of student loan refinancing on your credit score?

Yes. Private student loan refinancing requires a hard credit check. This credit inquiry can temporarily lower your score by a few points for a short period of time. Additionally, refinancing might affect your average age of credit accounts and other factors that contribute to your credit score.

Photo credit: iStock/Ridofranz

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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