September 3, 2021

What Is the Interest Rate for Student Loan Consolidation?

Repayment

Your consolidated student loan interest rate will depend on the interest rates of the multiple loans you combine. A Direct Consolidation Loan will use the weighted average of your federal student loan interest rates, rounded up to the nearest one-eighth of a percentage.

Your new interest rate will remain fixed for the rest of the loan’s life. Although there is no cap on a consolidation loan’s interest rate, the rate tends to stay within 8.25%. You can use the Federal Student Aid’s interactive student loan interest rate calculator to estimate your consolidation loan’s interest rate.

This post shows the process of finding your new interest rate when you consolidate your federal loans into one. We also highlight the current average interest rates of federal loans for an idea of how much you would get by combining your student loans.

Direct Consolidation Loan Interest Rate Calculation Method

Calculating your weighted average interest rate involves the following processes:

  • Step 1: Multiply the student loan balance by its current interest rate. Do the same for every loan balance of each student loan you select for consolidation.
  • Step 2: Add the results of Step 1.
  • Step 3: Divide the results of Step 2 by the Direct Consolidation Loan balance.
  • Step 4: Multiply the results of Step 3 by 100.
  • Step 5: Round up the results of Step 4 to the nearest one-eighth of a percentage (0.125%).

Here’s an example situation with hypothetical loan balances to demonstrate this interest rate calculation method:

Student Loan A: $1,500 loan balance; 5% interest rate

Student Loan B: $1,000 loan balance; 6.3% interest rate

Direct Consolidation Loan Balance: $2,500 = Student Loan A + Student Loan B

  • Step 1: Student Loan A = $75 = $1,500 × 5%; Student Loan B = $63 = $1,000 × 6.3%
  • Step 2: $138 = $75 + $63
  • Step 3: .0552 = $138 ÷ $2,500
  • Step 4: 52 = 0.0552 × 100
  • Step 5: 63% = 5.52% rounded up to the nearest one-eighth percent

This sample Direct Consolidation Loan will have a new fixed interest rate of 5.63% after consolidating two federal student loans.

Current Federal Student Loan Average Interest Rates

Federal student loan interest rates within the academic year 2020-2021 have the lowest levels in history. Consider these figures when proceeding with student loan consolidation:

  • Average Undergraduate Student Loan Interest Rate: 75%
  • Average Graduate Student Loan Interest Rate: 30%
  • Average Parent and Graduate Student PLUS Loan Interest Rate: 30%

Meanwhile, the average student loan interest rates between 2006 and 2021 are:

  • Average Undergraduate Student Loan Interest Rate: 66%
  • Average Graduate Student Loan Interest Rate: 22%
  • Average Parent and Graduate Student PLUS Loan Interest Rate: 27%

So, What Is the Interest Rate for Student Loan Consolidation?

The interest rate for student loan consolidation is a fixed rate based on the average interest rates of the combined loans. Take the average interest rate of all the student loans you consolidate and then round it up to the nearest one-eighth of a percentage to determine your Direct Consolidation Loan’s interest rate.

Student loan consolidation will not lower your interest rate. However, this rate will remain the same for your new loan’s entire life. Learn more about the advantages and disadvantages of student loan consolidation before combining your multiple federal student loans into one new policy.

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