Should I Consolidate My Student Loans?

If you’re feeling overwhelmed by your student loans, you can take comfort in the fact that you’re not 44 million Americans have student loan debt today.

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You might have a mix of both federal and private loans and have several different loan servicers. This can make keeping track of your total debt, minimum payments, and monthly due dates confusing. Sometimes it might even cause you to miss payments.

In cases like this, consolidating your student loans could help you manage your loans more efficiently. But it’s not a one-size-fits-all strategy. Here’s what to keep in mind before you dive into student loan consolidation.

What is student loan consolidation?

If you have multiple federal student loans and want to simplify your payments, consolidating can be a smart strategy. One way to consolidate your debt is to apply for a federal Direct Consolidation Loan.

With this method, the Direct Consolidation Loan is used to pay off your old debts. You’ll get a new loan equal to the combined amount of your old loans. It will have a fixed interest rate based on a weighted average of the loans you consolidate.

By taking out a Direct Consolidation Loan, you can minimize the stress of your debt while retaining your federal loan benefits. Often, Direct Consolidation is required in order to enroll in federal programs such as income-based repayment.

The difference between consolidation and refinancing

While the terms are sometimes used interchangeably, consolidating your loans is different than refinancing them. Because the interest rate is a weighted average, rounded up, consolidation is unlikely to save you money. Consolidation simply makes keeping track of your loans easier since you’ll have just one loan to manage and one payment to make each month.

Refinancing is a completely different process. If you refinance, you can consolidate several loans into one. However, you can refinance both federal and private loans. Plus, refinancing is only available through private lenders, so you lose the federal benefits associated with any federal loans you refinance.