Consolidating Federal Student Loans

Jon O'Donnell Updated on May 7, 2019

It’s common for college students to graduate with multiple federal loans – which usually means making multiple payments to multiple servicers each month. To help grads cut through the clutter and simplify their bills, the U.S. Department of Education has a free loan consolidation program that is user-friendly. However, it has some drawbacks.


If you’re thinking about consolidating your student loans through the government’s Direct Consolidation Loan program, here’s what you need to know:

  • Consolidating through the federal government does not lower your interest rate. A Direct Consolidation Loan can bundle your federal debts into a single bill, but it does not lower your interest payment. In fact, your interest rate might go up a bit. The Dept. of Education uses a weighted average of the underlying interest rates, and rounds up to the nearest eighth of a point. There are tools to help you determine what the interest rate would be. ( or
  • Private loans cannot be consolidated under the federal program. Most federal student loans are eligible for consolidation through the government, but private loans do not qualify.
  • Federal consolidation enables borrowers to remain eligible for most income-based repayment and loan forgiveness programs. Most federal loans retain their benefits after consolidation, but be careful about incorporating parent PLUS loans. Adding those to the mix eliminates some benefits. Also, consolidation resets the clock toward becoming eligible for loan forgiveness. In the case of teachers or other public service workers who must make regular payments for 10 years to have their student loans forgiven, consolidation would wipe away past payment history. Borrowers would have to start the 10-year cycle again from the beginning. It’s a good idea to calculate the potential value of any debt forgiveness against potential savings from refinancing to a lower interest rate.
  • Federal consolidation is an option for borrowers who have fallen behind on their loan payments and are at risk of wage garnishment. It does not require a credit check and can be used to rehabilitate loans that are in default status. Federal consolidation can be a good option for borrowers who are unlikely to qualify for better interest rates with a private bank.

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For college graduates who have good credit, a better option might be private student loan consolidation (also known as refinancing). Private consolidation can dramatically decrease the interest rate on student loans, lowering both monthly payments and the overall cost of student debt.

Here’s what you need to know about private loan consolidation:

  • Both federal and private student loans can be bundled into a single monthly payment through a private lender. All of your loans can be consolidated with private refinancing, and you might be able to get a lower interest rate. But borrowers who are eligible for loan forgiveness or who need income-based repayment plans should use caution. Refinancing federal loans with a private lender disqualifies borrowers for those programs. It’s important to weigh the value of any sum that might be forgiven against the savings from lower interest rates
  • Private consolidation is the only way to lower interest rates. People often assume that federal loans are the best deal available. But most federal programs charge everyone the same interest rate – a one-size-fits-all percentage, regardless of the borrower’s financial profile. The rate has to account for high-risk applicants who are more likely to default or not finish their degrees. Private lenders can be selective about who they approve. If you’ve built up your credit in the years since graduation, you might qualify for a much lower rate by refinancing with a private lender.
  • Private lenders offer a variety of term lengths, types of interest, and repayment plans. New competition from innovative start-up firms has transformed the student lending industry in recent years. The result is more options and better customer service for borrowers. People who consolidate their loans with private lenders can choose fixed or variable interest rates. Many lenders allow custom term lengths, and some companies offer interest-only payments for two years.
  • Many companies offer networking events, happy hours, career counseling, and other customer service benefits. Private lenders offer a lot of perks that the federal government does not. Some of these can help you land a better job, negotiate salary increases, or find new clients.
  • Application process is very fast - under 5 minutes in many cases. Innovation in the student lending industry has included leveraging technology to make the application process much faster. The initial inquiry takes a little as 2-3 minutes with most lenders. It is considered a “soft pull,” which does not impact credit, and applicants can get an instant answer about whether they qualify and what their rate would be.

How to get the best deal when consolidating student loans

Consolidating student loans can be very appealing if you’re juggling multiple bills each month, but be sure to explore all of your options - both federal and private - before signing on the dotted line. The best course of action is to shop around and compare the results side by side.

There are many lenders that offer student loan consolidation, but based on our research and reviews, we consider the following to be the best based on their interest rates, transparency, ease of applying, and customer service.

To get the best deal on your consolidation, we recommend that you start with the top-rated lenders listed below...

Published in: Consolidate

About the Author
Jon O'Donnell

Jon is a writer and marketer for Nitro who is passionate about bringing transparency to the student loan process along with providing families with the information needed to make smart financial decisions. He also just recently refinanced his student loans allowing him to pay them off 5 years faster all while saving an additional $152/month. As he continues to pay them off himself, he strives to help others do the same. Jon also has a long history of connecting people with educational opportunities to help them improve their careers and their overall personal finances. In his free time you can find him reading travel blogs and researching destinations around the world in search of his next adventure. Read more by Jon O'Donnell

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Splash Financial is a leader in student loan refinancing with new rates as low as 2.49% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.

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For every loan they fund, they contribute to the education of a child in need

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CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.

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  • Unemployment protections - If you lose your job or decide to go back to school, you can delay your payments for up to 24 months.
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SoFi is the leading student loan refinancing provider. 

  • Fixed rates: 2.49% - 6.94% APR
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  • Minimum credit: 650
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$30 billion+ in refinanced student loans. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, there's no maximum on the amount you can finance. Some state restrictions may apply.

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Ability to apply for cosigner release after 24 consecutive payments. 

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If you’re ready to put student loans in your rearview mirror, Nelnet Bank student loan refinancing offers low rates and flexible terms to help you start getting ahead.

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Connecting student borrowers to a network of over 300 community lenders with low interest rates. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.

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Best for borrowers who want to customize their repayment schedule to pay off debt fast.

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