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.
Calculating your weighted average interest rate involves the following processes:
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
This sample Direct Consolidation Loan will have a new fixed interest rate of 5.63% after consolidating two federal student loans.
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:
Meanwhile, the average student loan interest rates between 2006 and 2021 are:
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.