In 2025, 42.7 million Americans collectively have over $1.77 trillion in student loan debt. If you are one of the millions with some form of student debt, you may have asked yourself, Should I consolidate my student loans?
Consolidation is a process that allows you to combine your student loans into one loan with one monthly payment. Simplifying the student loan repayment process might seem like a good idea, but there are a few things to consider before you consolidate your loans. In some cases, consolidating loans may disqualify you from certain federal student loan repayment programs and forgiveness. But other times, consolidation can allow you to lower your interest rates or shorten the amount of time it takes you to pay off your loan.
Read on to learn how student loan consolidation works, the pros and cons of the process, and when to consolidate student loans.
Key Points
• Consolidating student loans can simplify repayment by combining multiple loans into one.
• Reduced monthly payments and new loan terms are potential benefits of consolidation.
• Federal loans can be consolidated through the Direct Consolidation Loan program. Private student loan consolidation is more commonly known as student loan refinancing.
• Refinancing may offer lower interest rates, but refinancing federal loans results in losing federal benefits.
• Carefully consider the pros and cons before consolidating or refinancing student loans.
What is Student Loan Consolidation?
Student loan consolidation combines some or all of your student loans into one loan and makes repayment more manageable. There are both federal and private options when it comes to consolidating your student loans.
Private Student Loan Consolidation
Private student loan consolidation is more commonly known as student loan refinancing. This is when a private lender pays off all or some of your student loan debt and creates a new loan, which you will then make payments on. Ideally, when you refinance student loans, the new loan will have a lower interest rate and better terms than your previous student loans.
With a private lender, you can combine both federal and private loans. But if you refinance your federal loans you will lose access to federal student loan forgiveness programs, such as income-driven repayment plans. If you plan on using one of these programs now or at some point in the future, it’s best to hold off on refinancing federal loans. Instead, you could refinance just your private loans.
Federal Student Loan Consolidation
If you are hoping to consolidate federal loans only and want to keep access to federal forgiveness programs and other federal benefits, you can consolidate with a Direct Consolidation Loan through the U.S. Department of Education.
Consolidating through the federal student loan system doesn’t usually save you money; it simply combines multiple loans into one. Your new interest rate is a weighted average of all your loans’ interest rates, rounded up to the nearest eighth of a percentage point. Should you consolidate student loans, any unpaid interest on the loans you’re consolidating will be capitalized — that is, added to the principal of the new loan.
Consolidation may be particularly useful for borrowers who are pursuing federal student loan forgiveness or who are enrolled in one of the more flexible federal student loan repayment plans, such as an income-driven repayment plan.
You can also choose to consolidate your federal loans and refinance your private loans. If you go this route, you may be able to get the possible benefits of refinancing (lower interest rates, better terms) without losing the perks of having federal loans.
Before you consolidate or refinance your loans, you should consider the pros and cons of the process. Getting clarity on whether consolidation is right for you will help you make the right decision for your financial needs.
Benefits of Consolidating Student Loans
As you’re considering when to consolidate student loans either with a Direct Consolidation Loan or refinancing through a private lender, there are several advantages to keep in mind.
Simplified Repayment
Whether you choose a Direct Consolidation Loan or choose to refinance through a private lender, your loan repayment may be simplified. Managing multiple student loan payments might increase your chances of missing a payment. If you miss even one payment, you may risk damaging your credit score. Late payments may also stay on your credit profile for up to seven years.
Consolidating loans into one may help eliminate some of the stress of juggling multiple loan payments and may make repayment more manageable.
Fixed Interest Rate
When you refinance your loans through a private lender, your interest rate and terms will be based on your credit score, payment history, type of loan you’re seeking, and other financial factors. While requirements may vary by lender, applicants who meet or exceed the lender’s criteria may qualify for better interest rates and terms and save money over the life of the loan.
Borrowers can also switch from a variable to a fixed interest rate when refinancing through a private lender if they’d like a payment that stays the same every month (variable rates can fluctuate with market conditions).
With federal Direct Loan Consolidation, as mentioned earlier, a borrower’s interest rate is a weighted average of current loan rates rounded up to the nearest one-eighth of a percentage point, which means this doesn’t typically result in savings for the borrower. The borrower does, however, keep their access to federal loan forgiveness programs.
Flexible Loan Terms
Student loan consolidation may allow you to change the duration of your loan. If you currently have a 10-year repayment plan, for example, you may choose to shorten or lengthen the term of your loan when you consolidate or refinance. Typically, lengthening the term of your loan will reduce your monthly student loan payment but add up to more total interest in the long run.
Drawbacks of Student Loan Consolidation
Even though there are benefits of student loan consolidation, there are also drawbacks. Here are a few considerations to be aware of before consolidating student loans.
You Can’t Lower Interest Rates on Federal Student Loans When Consolidating
If you choose the Direct Consolidation Loan, generally you won’t see any savings. Because your new interest rate is a weighted average of your current loans rounded up to the nearest one-eighth of a percentage point, you will probably pay around the same amount you would have paid if you didn’t consolidate. In addition, any unpaid interest on the loan you’re consolidating will be capitalized — that is added to the loan principal.
If you extend your term, you may see your monthly payment decrease, but your total interest payments will increase.
On the other hand, if borrowers choose to refinance with a private lender, they may qualify for a lower interest rate, thus saving money over the term of the loan. They could also opt for lower monthly payments by extending their loan term. But they may pay more interest over the life of the loan if they refinance with an extended term.
Possible Disqualification from Federal Repayment Programs
Refinancing federal student loans with a private lender means you lose access to federal repayment programs, including the Public Service Loan Forgiveness Program (PSLF) and income-driven repayment plans.
Borrowers will also be disqualified from federal benefits such as student loan forbearance and deferment options, which allow qualifying borrowers to pause payments in the event of financial hardship.
Some private lenders may offer their own hardship programs, but policies are determined by individual lenders.
Student Loan Refinancing vs. Consolidation
Consolidating or refinancing student loans are terms that are used interchangeably, but they actually apply to two different types of loans. A federal student loan consolidation is when you combine federal loans through a Direct Consolidation Loan. This is done by the U.S. Department of Education.
A student loan refinance allows you to combine private and/or federal loans into one new loan and is done by a private lender. While this does effectively “consolidate” your loans, it’s different in some important ways from federal student loan consolidation.
Below are some differences and similarities between student loan consolidation vs. refinancing.
|
Student Loan Refinancing vs Consolidation |
|
|---|---|
| Refinance | Consolidation |
| Combines multiple loans into one | Combines multiple loans into one |
| Can refinance federal and private loans | Can consolidate federal loans only |
| Private refinance lenders may charge a fee | No fees charged |
| Credit check required | No credit check needed |
| Interest rate could be lowered | Interest rate is a weighted average of prior loan rates, rounded up to nearest one-eighth of a percent |
| Term can be lengthened or shortened | Term can be lengthened or shortened |
| Once refinanced, federal loans will no longer qualify for federal forgiveness or repayment programs | Loans remain eligible for federal forgiveness and repayment programs |
| Saves money if interest rate is lowered | Typically not a money-saving option |
Key Takeaways
Understanding the benefits and drawbacks of student loan consolidation — as well as the difference between federal student loan consolidation and private refinancing — can help you make an informed decision about repaying student loans.
If you decide to consolidate your loans through student loan refinancing, you might want to consider evaluating a few options from different lenders, because requirements — as well as interest rates and loan terms — can vary from lender to lender.
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.
FAQ
Can your student loans still be forgiven if you consolidate them?
If you consolidate your federal student loans with a Direct Loan Consolidation, you are still eligible for federal loan forgiveness programs. However, if you choose to consolidate your federal loans through a private lender, which is known as refinancing, you will no longer be eligible for forgiveness programs and other federal student loan benefits.
When is consolidating student loans worth it?
Consolidating student loans is worth it if you’re looking to combine multiple student loan payments into one. You can use a Direct Consolidation Loan for your federal loans and keep your access to federal benefits like income-based repayment programs or forgiveness.
Another option is to refinance your student loans through a private lender, which may give you a lower interest rate and lower monthly payment, but if you refinance federal loans, you lose access to federal benefits like forgiveness and income-driven repayment plans.
What are some advantages of consolidating student loans?
The biggest advantage of consolidating your student loans is that you combine them into one loan so you only have one payment every month. This makes it easier to track your loans.
If you choose to refinance your loans with a private lender, you may also receive a lower interest rate, which can help you save money. But if you refinance federal loans with a private lender, you lose access to federal programs like forgiveness and forbearance.
What types of student loans are eligible for consolidation?
The types of federal student loans eligible for consolidation through federal Direct Loan Consolidation include: Direct Subsidized and Unsubsidized Loans, Direct Plus Loans, Federal Stafford Loans from the Federal Family Education Loan (FFEL) program, FFEL PLUS Loans, and Federal Perkins Loans.
The types of student loans eligible for refinancing are federal student loans and private student loans. But refinancing federal student loans makes them ineligible for federal benefits such as income-driven repayment and federal forgiveness programs.
SoFi Student Loan Refinance SoFi Loan Products
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