July 28, 2021

What Is Student Loan Consolidation?


Are you thinking about consolidating your student loans but aren’t sure how to go about it? Here, we’ll help you understand your options and give you details on the best choices for you.

What is Student Loan Consolidation?

Student loan consolidation is a process that involves taking out a new loan to help pay off your existing student loans. Rather than having several loans and loan payment plans, student loan consolidation merges everything into one loan. Using this, you can combine all your private student loans and all your federal student loans, simplifying the payment process.

How much you’ll be allowed to borrow will depend on your college costs per year. For instance, if you take a four-year course, it’s likely that you will incur four loans — and this amount can increase if you choose to get a private loan for additional funding. Consolidating all your loans can simplify your life; however, you also need to be careful as there may be conditions that can cause you to lose some benefits from certain loans you currently have.

Am I Eligible for Student Loan Consolidation?

In most cases, a student is considered eligible for loan consolidation if they are:

  • Presently unenrolled or enrolled on a less than part-time basis
  • Making loan payments within the loan’s grace period
  • Good at making repayments (which means that there are no defaults on the loans)
  • Carrying between $5,000 to $7,500 in loans

While there’s no need for you to meet a minimum to combine your debts within the federal Direct Consolidation Loan program, some loan companies and private lenders may demand a minimum balance on your loans. Furthermore, you can’t consolidate federal student loans with private student loans. Lastly, you’re only allowed to consolidate loans under your name, which means that you can’t consolidate your loans with that of a spouse or loans under your parents’ names that they took to finance your education.

What Are the Advantages of Loan Consolidation?

Keep in mind that some advantages apply only to private loans or only to federal loans. Additionally, you can choose to keep a loan separate if it has great borrower benefits.

Advantages for Private Loans

  • Getting a fixed-rate loan: If you have student loans that have varying interest rates, you may be able to consolidate them and get one loan with a fixed rate. This is a smart move, especially if the rates have dropped significantly since you were last in school.
  • Getting a lower interest rate: If you have more than one student loan and have been able to improve your credit score since getting the loan, you might qualify for a consolidated loan with lower interest rates.

Advantages for Federal Loans

You can get an alternate repayment plan, which makes you eligible for a federal loan that will make it easier for you to repay your loans. There are two types of this plan, which are:

  • Income-sensitive repayments: These will calculate your monthly payment amount and convert it as a percentage of your pre-tax monthly income.
  • Graduated repayments: These allow you to start your payment at a lower amount every month, which will then gradually increase every two years.

What Are the Disadvantages of Loan Consolidation?

These are some cons that come with consolidating student loans, which apply to all kinds of loans:

  • Paying a bigger sum of interest: This happens as you will be restarting your loan repayment, which will probably lengthen your payment period. As such, even if your interest rate stays the same or decreases, you may still end up paying more in interest in total.
  • Need to repay borrower benefits: Fee waivers and rebates will need to be factored into your consolidation loan’s total cost before you start consolidating. You also need to consider which loans to include in your consolidation.
  • The loss of grace periods on your existing loans: If you have any grace periods on your current loans — student loans will usually have a post-graduation grace period — a consolidated loan most likely won’t have this.


Simply put, student loan consolidation is a great way to combine different loans into a single loan, which are all merged into one monthly bill. It may sound like a good idea off the bat, but it’s best to consider the conditions of your current loans and what consolidating them might mean for you. Because, while this process may have very attractive offerings, it also comes with a few but considerable disadvantages. Make sure to take into account all the details outlined above before deciding to consolidate your student loans.

Let's make chippin' your student loans easier.
Start Now
Top half of an iphone mockup with the Chipper app