How to Consolidate your Student Loan

Sage Crary
Sage Crary
Director of Financial Aid and Scholarships, pursuing an MS in Ethics and Religion

Student loan consolidation is a bit of a tricky topic. The types of loan consolidations available, and the specific ones that you may qualify for, can be highly variable based on your specific student loans. However, in general, the following principles can get you started.

In essence, a student loan consolidation is when several individual student loans are grouped into one big loan. The interest rates are then averaged in many cases (although some lenders will negotiate and offer you lower rates to consolidate with them, so it’s best to shop around), and you have a longer period of time to pay them back. By consolidating, you not only pay less in interest over the long term, but you almost always significantly reduce your monthly payments. An average student who completed his/her bachelor’s degree in four years, and completed a two-year master’s program, will have an average of 10-14 individual federal loans.

There are two main categories of student loans – federal loans (FFELP Stafford Loans and Direct Loans) and alternative (private) student loans.

  • Federal loans are broken into two subcategories categories — FFELP Stafford Loans and Direct Stafford Loans. Each one has the same interest rate and fee structure, however, their consolidation rules are different. To see what loans you have, you can log into the National Student Loan Database (NSLDS) using your specific information and check your loan types.
  • Alternative (private) student loans — these are loans that you would have applied for independently from your FAFSA application. These would have required additional steps, such as a credit check, proof of income, and (in many cases) a cosigner. These are held independently by a separate bank or agency (such as a Wells Fargo, Sallie Mae or other lenders). With rare exceptions, these loans are not typically eligible under most consolidation programs. These will also not show up in NSLDS when you log in, as NSLDS is just for your federal student loans and does not include alternative loan data.

Once you’ve logged into NSLDS to see what types of loans you may have, you can also check to see who your “servicer” is for each loan. When you look at each one your loans, there will be an individual servicer associated with it (who you write your checks to each month). Sometimes you may get lucky, and many of your loans have the same servicer, which makes consolidation a bit easier, but it’s more common that you may have several different servicers. In the student loan world, you have one or more individual loans from each year you attended school, so it’s highly possible that based on what school you attended and when, that you would have more than one servicer.

While the consolidation rules are the same for federal aid programs regardless of which servicer you choose, it’s always best to contact each one and “shop around.” Sometimes different servicers will run programs to incentivize you to consolidate with them for a reduced interest rate or automatic payment reduction. Common questions you would want to ask would be:

  • How much would your interest rate be if you consolidated with them?
  • What repayment options would you have available?
  • What would your monthly payments be?
  • Will the interest rate be lowered with automatic payments (most lenders offer up to a .24%-.49% interest rate reduction simply by signing up for automatic payments)?

It’s also very important to let them know right away if you are going to be pursuing the Teacher Loan Forgiveness Program or Public Service Loan Forgiveness, as you must make sure you are enrolled in a qualifying repayment plan.

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