Student Loan Consolidation: What You Need to Know Before Applying 

Consolidating federal student loans

If you have loans through the government, it often makes sense to bring them under one umbrella.

Here's how this process works: When you consolidate, the government turns your existing federal student loans into a single Direct Consolidation Loan.

However, it's important to know that the interest rate on your Direct Consolidation Loan is not always lower. Instead, the rate is calculated by taking the weighted average of the interest rates on your existing loans and then rounding up to the nearest one-eighth of 1%. This new rate is fixed for the life of the loan.

How to consolidate federal student loans

Ready to consolidate your federal student loans? Here are the steps you need to take:

1. You'll need to have your Federal Student Aid (FSA) ID handy. (Don't remember your ID? You can find it here.) 

2. When you're ready, complete the application online or by calling the Federal Loan Consolidation Information Call Center at 1-800-557-7392. It takes at least 30 minutes to complete the application. If you use the online application, you'll see this screen, from which you need to log in with your ID.

3. Using Federal Student Aid’s Repayment Estimator, you can see what your monthly payment would be on each of the income-driven repayment plans. You can also call your loan servicer and ask which plan could save you the most money over the life of your loan or lower your monthly payment.

4. Typically, the first payment of your consolidated loan will need to be made within 60 days. IMPORTANT: Until your loan servicer contacts you with a due date and instructions for payment, keep making payments on your old loans. 

Consolidating private student loans

Have private student loans that you'd like to consolidate? You might be wondering if private consolidation is even possible. It is, but you have to go about it a different way.

The truth is you can't consolidate private student loans through the federal government. Instead, you consolidate your loans refinancing through a private lender. Like federal consolidation, student loan refinancing allows you to combine your loans into a single monthly bill. Essentially, refinancing is when you take out a new loan with new loan terms to pay off your existing debt.

This strategy will also work if you have a mix of both federal and private student loans; You can refinance your federal loans through a private servicer as well.

See also: Should I Refinance My Student Loans?

How to consolidate private student loans 

1. Use our Student Loan Consolidation Calculator to see how much you could save by refinancing multiple loans into one new one.

This should give you a good idea whether refinancing is the right choice for you. You can also take this 7-question quiz to find out.

Now, since there isn't just one option as with consolidating through the federal government, you need to compare lenders before applying. Some of the highly vetted lenders we currently work with and recommend are:

• LendKey
• Laurel Road
• College Ave.
• ElFl
• Splash Financial
• CommonBond
• SoFi
• Citizens One

You can compare lenders' rates and loan terms directly on Nitro. 

You should also consider calling the lenders at the top of your list to see what their customer service is like. Since you'll be in a long-term relationship with your lender once you refinance, you want to make sure that not only their rates and loan terms are good but that they'll respond appropriately when you need support.

2. Submit an application with your lender of choice.

Start by completing an initial inquiry with your top two or three choices. This isn't the same as the full application process, so it won't impact your credit score, but it will give you an idea of what rate you qualify for with each lender. 

Once these lenders give you an initial offer with an interest rate, loan terms, and an estimated monthly payment, compare the results side-by-side. Consider not only your monthly payment but also how much you’ll pay in the long run.

After choosing a lender, fill out their refinance loan application. You'll need the following: 

• Information about your current loans, including your original and current loan balance, interest rate, servicer name and address, and payoff date
• Your driver’s license, passport or a bank statement to verify your address
• Your last month’s pay stubs
• Your most recent tax return
• Proof of graduation

From there, they will either approve or deny you based on your credit history, current loan status, employment status, and more.

See also: Private Student Loan Refinancing: How to Compare Rates and Choose a Lender

Benefits of student loan consolidation

Finding the right student loan repayment plan is important for everybody after graduation. It can help you manage your student loan debt and even help shorten your repayment period. After determining whether have qualifying loans for consolidation, you can begin to consider the benefits and drawbacks of both.

However, there are different pros and cons to consolidating both federal and private student loans.

Benefits of federal student loan consolidation

Consolidating your federal student loans has plenty of benefits. Overall, it can be a great repayment option post-graduation if you want to simplify your student loan payments. Some of the other benefits to consolidating your federal education loans include:

• Instead of having different loan payments due each month, consolidating allows you to make just one easy payment.
• You'll be able to apply for an income-driven repayment plan, allowing you to make payments more manageable for your financial situation. 
• You'll be able to take advantage of Public Service Loan Forgiveness Program (PSLF) if you work for a qualifying employer. Only Direct loans are eligible for this program. In addition, there are a few other loan programs that may qualify you for forbearance, deferment, or forgiveness. To find out more, visit StudentAid.gov.

Benefits of private loan consolidation

Consolidating your private loans is one of the smartest things you can do. It can help save loan borrowers plenty of money in the long term and gives you a new interest rate. Some of the major benefits of private loan consolidation include:

• Refinancing saves you money. People who refinance with private lenders, on average, lower their payments by $253 a month or save $16,183 over the life of their loans. To find out how much you could save, check out our Student Loan Refinancing Calculator. 
• Like consolidation, refinancing simplifies student debt repayment by converting your existing loans into a single loan with a single monthly payment. 
• Typically, refinancing gives you a lower interest rate and lower monthly payments. You may also choose to extend your repayment term, which can lower your monthly payments even further.
• Most lenders that refinance student loans allow flexible repayment options so that borrowers can be the best fit for their particular situation.
• Most reputable lenders do not charge a fee for refinancing your student loans.
• If you're employed and you have a good credit score, you probably qualify for refinancing. If you don't, you may still meet eligibility requirements by applying with a cosigner. (See also: Quiz: Do You Need a Cosigner to Refinance Your Student Loans?)
• Some private lenders have career-specific programs for those completing medical or dental residencies.  

Drawbacks of student loan consolidation

Student loan consolidation is an excellent repayment strategy for some loan borrowers, but not for others. There are a few drawbacks you should consider before applying for student loan consolidation. These include:

• You might end up paying more interest in the long run, and it could take you longer to pay off your debt. Because of how student loan payments are applied, opting for a single, smaller monthly payment without lowering your interest rate means less of your money will go toward the principal every month.
• You'll lose certain benefits from specific loans. As an example, federal Perkins Loans are forgiven for some teachers who work in low-income areas, for some law enforcement officers, and for some other public sector employees. But once Perkins Loans are consolidated as part of a Direct Consolidation Loan, you'll lose this forgiveness benefit if you were counting on it.
• If you've been making payments toward loan forgiveness, you'll lose any credit for qualifying payments after you consolidate. Essentially, the clock starts over. 
• Private lenders look for good credit and a low debt-to-income ratio. That means that if you have less than excellent credit, high debt-to-income ratio or you've had an unstable employment history, you might not be able to refinance without a cosigner.