The following is a list of common questions about student loan
consolidation. These are genericized versions of actual questions
received through FinAid's free
Ask the Aid Advisor
- Are there any minimum balances required to
Federal Direct Consolidation Loan Program does not have a minimum
(When FFELP lenders were able to consolidate federal education loans,
some lenders required a minimum balance of $5,000 or $7,500. Since
July 1, 2010, only the direct loan program has been able to
consolidate federal education loans.)
- Does consolidation affect my credit rating?
No. Education debt is considered "good debt", as it represents an
investment that generally increases your ability to earn money to
repay debt. Even though consolidation may increase the term of the
loan, it does not appreciably change repayment behavior. (Defaulting
on your education loans, on the other hand, will negatively impact
your credit rating.)
- How do I go about consolidating my loans?
Visit the federal direct consolidation loan web site at
to consolidate your loans. This is a self service web site that allows
borrowers to consolidate their loans online. Borrowers can also call
1-800-557-7392 (TDD 1-800-557-7395).
The US Department of Education will then contact the lenders to
determine loan payoff amounts and issue a new consolidation loan to
pay off the loan balances on the borrower's existing loans.
Until you receive notification that your original loans have been paid
off, continue making payments on those loans. You don't want to go
into default on those loans, since that would prevent your
consolidation loan application from moving forward.
- Are there any ways to save money through consolidation?
Previously, some lenders would offer small discounts as an incentive
for borrowers to consolidate with them. Most lenders stopped offering
discounts during the subprime mortgage credit crisis. Since July 1,
2010, all new federal consolidation loans have been made through the
direct loan program, so there is no longer any competition among
lenders to attract borrowers. However, the federal direct
consolidation loan program offers a 0.25% interest rate reduction for
borrowers who agree to repay their loans through auto-debit.
Before July 1, 2006, federal education loans had variable rates. A
consolidation loan was a useful tool for locking in the current rate
on a variable rate loan. Consolidation loans earned a reputation for
saving borrowers money because locking in the interest rate prevented
the interest rate from rising. Lenders would compare the locked in
rate with the maximum possible interest rate or the historical average
interest rate. However, since July 1, 2006 all new federal education
loans have had fixed rates. Consolidation is no longer needed to lock
in the interest rate, since the interest rates are already fixed. Thus
consolidatiton does not save money. (Some borrowers consider
consolidation loans to save money because the borrowers can then
choose an extended repayment term, which reduces the monthly
payment. But this comes at a cost of increasing the term of the loan,
which increases the total interest and total payments over the life of
the loan. For example, if a borrower switches the repayment term on an
unsubsidized Stafford loan at 6.8% interest from 10 years to 20 years,
it cuts the monthly payments by about a third, but more than doubles
the total interest paid over the life of the loan.)
- Can parents consolidate PLUS loans? Should they?
Yes, parents can consolidate PLUS loans. Consolidating a
PLUS loan can yield some savings if the Parent PLUS loan has an 8.5%
interest rate, since consolidation reduces the interest rate
from 8.5% to 8.25% due to the cap on the interest rates of
consolidation loans. However, one must consider the impact of
consolidation on available student loan discounts.
Since July 1, 2010,
all new PLUS loans have had a 7.9% fixed rate, so consolidation does
not reduce the interest rate on more recent PLUS loans. In fact, it
will increase the interest rate from 7.9% to 8.0%.
- I have just one loan. Can I consolidate?
Yes, so long as the loan being consolidated is not itself a
consolidation loan. To reconsolidate a consolidation loan, you must be
including additional loans. Otherwise, you can
consolidate even just a single loan.
- I consolidated a few years ago. Can I consolidate again?
Consolidation loans may only be reconsolidated when you are adding
more loans to the consolidation. If you do not have other federal
education loans to include in the new consolidation loan, you cannot
reconsolidate a consolidation loan unless you are consolidating the
loans to move them from
the FFEL program to the direct loan program. Note that reconsolidating a
consolidation loan does not relock the interest rates on the loan.
- I have not yet graduated. Can I consolidate my loans?
No. The early repayment status loophole
was repealed, effective July 1, 2006. In addition, the ability of
Direct Loan borrowers to consolidate during the in-school period was
also repealed on this date. You can only consolidate during the grace
period or after your loans enter repayment. (If you drop below half
time enrollment status, your loans will be eligible for
consolidation. Summer enrollment and accelerated programs, however,
generally do not qualify
you to consolidate your student loans.)
- I qualified for a 2.25% discount on my unconsolidated
Stafford loans (i.e., 0.25% interest rate reduction for direct debit
and 2% interest rate reduction after 48 months of on-time payment). If
I consolidate, will I lose these benefits? Is it still worthwhile to
A consolidation loan is like a refinance. It is a new loan that pays
off the original loans. The new loans does not have any of the special
discounts that were provided on the original loans. If you consolidate
your loans, you will lose any existing loan discounts.
To determine whether it is worthwhile to consolidate, you need to
compare the value of the loan discounts you will get if you
consolidate with the value of the loan discounts you retain if you
- I don't remember who my lender is. Help!
The financial aid administrator at your college may be able to
help. You can also look up your lender online. See FinAid's
Lost Lender page for information about the
National Student Clearinghouse's Loan Locator service and the NSLDS
- Can I consolidate private education loans? Can I
consolidate my Federal and private loans together?
You cannot consolidate private education loans into the Federal
consolidation loan program. However, some lenders offer
private consolidation loans
for those loans. We do not recommend including federal education loans
in a private consolidation loan, as this often increases the interest
rate. You will also lose several important benefits of the federal
education loans, such as flexible repayment terms and generous loan
forgiveness and cancellation provisions. Consolidate your federal
loans separately, with the federal consolidation loan program.
Note that in most cases the private consolidation loan is a variable
rate loan, so you aren't locking in a lower rate, just switching
lenders. The new loans will have a new variable interest rate based on
the borrower's current credit score.
However, if a borrower has been in repayment for a few years and has
been making all payments on time as per the agreement, their credit
scores may have improved. This may allow a borrower to consolidate to
get a better interest rate. (Typically, a borrower's credit scores
decrease with each year in school, since each year brings a higher
Some borrowers will seek a private consolidation on their own as a
form of cosigner release. The new loans, which does not include a
cosigner, pays off the old cosigned loans, effectively releasing the
cosigner from the obligation to repay the loans. (Some lenders offer a
cosigner release option which will release the cosigner from the
obligation to repay the debt after 12, 24, 36 or 48 months of on-time
payment, provided that the primary borrower satisfies credit
criteria. Borrowers report that it is difficult to qualify for
There is at least one lender that offers a fixed rate private
consolidation loan, but only to low-risk borrowers. (In general,
lenders offering consolidation loans are concerned about adverse
selection, where a borrower who is struggling to repay his or her
loans believes that consolidation will solve the problem. The last
thing any lender wants is to "buy" a default.)