How to consolidate student loans

  • You can combine multiple student loans into one with a loan consolidation.
  • You will apply for a loan consolidation through the federal government online or by mail.
  • When you consolidate, you get a fixed interest rate that is the average of the rates on your old loans.
  • Learn more about Insider’s student loan coverage here.

Keeping track of multiple monthly federal student loan payments can be a headache. Consolidating student loans can help you streamline the process and make it easier to manage your financial obligations.

What is loan consolidation?

Consolidating a loan means that you combine several federal student loans into one. You’ll get a fixed interest rate that’s a weighted average of the rates on your old loans, rounded to the nearest eighth of a percent.

Consolidating loans can make it easier to manage your financial obligations because you will be making one monthly payment rather than multiple. You can also get a lower monthly payment by extending the term of your loan, although you will pay more overall interest by doing so.

However, when you consolidate your loans, any unpaid interest becomes part of the principal balance of your new loan. This means that interest can accumulate on a larger principal balance than if you had not consolidated. You won’t get a lower rate consolidating your student loans.

Applying for a direct consolidation loan is free. Private companies may offer to help you complete your application for a fee, but they are in no way affiliated with the Ministry of Education.

You can only consolidate federal loans – private loans are only eligible for refinancing (which is sometimes confusingly referred to as private consolidation). Plus, you can only consolidate a loan that is in repayment or grace period, so you won’t be able to do so while you’re still in school.

What do I need to consolidate student loans?

You will need to complete the government direct consolidation loan application to consolidate your student loans. You can either apply online or by mail print request. You will need to provide the following:

  • Verified Federal Student Aid Identity Card
  • Contact details including address, email and phone number
  • Which loans you want to consolidate
  • Social Security number
  • Name and address of employer (or an indication that you are not employed)
  • Driver’s license state and number
  • Reference information
  • Information about your income (if you are looking to consolidate as part of an income-based repayment plan)

Five steps to consolidate a loan

  1. Review your current loan terms. Log into the portals of your providers and see the interest rate you pay on your loans and their repayment terms. Download all relevant files and keep them for your records in case of errors during consolidation.
  2. Apply for a direct consolidation loan with the federal government. You need to complete the application all at once and it will take around 30 minutes or less. You will see your new loan conditions when you apply.
  3. Choose a repayment plan. You can choose a standard repayment plan, the default option that fixes your monthly payment at a fixed amount over a ten-year term. Gradual repayment plans are also an option where your payments will start low and increase every two years over a ten year repayment period. You can also choose an income-based repayment plan, which takes your particular income and family size into account when calculating monthly payments.
  4. Sign a primary promissory note. You will need to sign a Master Promissory Note if you choose to take out a new loan. An MPN is a legal document that you sign to promise to repay your loan along with interest and fees. You will confirm the loans you want to consolidate when you sign this document.
  5. Continue to make payments. Continue to pay off your current loans until your consolidation agent informs you that they have been repaid by your new direct consolidation loan. Once your consolidation process is complete, you will start making a monthly payment instead of the multiple you made before. Your loan manager will let you know when your first payment is due, which is 60 days after your loan is disbursed.

Consolidating your student loans is a relatively painless process and can help you organize your student loan payments. All you need to do is complete a federal application and enter personal and financial information.

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