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Student Loans – To Consolidate or Not to Consolidate?



To consolidate or not to consolidate, that is the question? This is the most common question asked to us and I am sure your loan servicer. The answer depends on each person’s individual circumstances.

First and foremost, you may be contacted by private companies that offer to help you apply for a Direct Consolidation Loan, for a fee. These companies have no affiliation with the U.S. Department of Education (ED) or ED’s consolidation loan servicers. There’s no need to pay anyone for assistance in getting a Direct Consolidation Loan. The application process is easy and free.

The Pros:

• If you currently have federal student loans that are with different loan servicers, consolidation can greatly simplify loan repayment. It will do so by giving you a single loan with just one monthly bill.
• Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans.
• You can consolidate loans other than Direct Loans. Doing so may give you access to additional income-driven repayment plan options and Public Service Loan Forgiveness (PSLF). (Direct Loans are from the William D. Ford Federal Direct Loan Program.)
• You’ll be able to switch any variable-rate loans you have to a fixed interest rate.

The Cons:

• Consolidation usually increases the period of time you have to repay your loans. Therefore, you will likely make more payments and pay more in interest than would be the case if you didn’t consolidate.
• When you consolidate your loans, any outstanding interest on the loans that you consolidate becomes part of the original principal balance on your consolidation loan. This means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated.
• ******Consolidation may also cause you to lose certain borrower benefits. These include interest rate discounts, principal rebates, or some loan cancellation benefits that are associated with your current loans.
• ********Let’s say you’re paying your current loans under an income-driven repayment plan, or you’ve made qualifying payments toward Public Service Loan Forgiveness. Then consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or PSLF.

Now the biggie. Sometimes consolidation could cause you to lose benefits associated with some of your current loans. If you are working toward earning those benefits, you should not include those loans in your new Direct Consolidation Loan. When you apply for a Direct Consolidation Loan, you don’t have to consolidate all of your eligible loans.

Most federal student loans are eligible for consolidation. 

  • Subsidized Federal Stafford Loans
  • Unsubsidized and Nonsubsidized Federal Stafford Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
Please check these loans out very carefully as Private lenders made these loans available, that were guaranteed by the federal government.
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Nursing Student Loans
  • Nurse Faculty Loans
  • Health Education Assistance Loans
  • Health Professions Student Loans
  • Loans for Disadvantaged Students
  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans
  • FFEL Consolidation Loans
  • Direct Consolidation Loans (only under certain conditions)
    Federal Insured Student Loans
  • Guaranteed Student Loans or GSL loans made prior to 1992
    National Direct Student Loans
  • Auxiliary Loans to Assist Students
  • National Defense Student Loans
  • Parent Loans for Undergraduate Students

******Private education loans are not eligible for consolidation, but for some Direct Consolidation Loan repayment plans, the total amount of your education loan debt—including any private education loans—determines how long you have to repay your Direct Consolidation Loan.

******Direct PLUS Loans received by parents to help pay for a dependent student’s education cannot be consolidated together with federal student loans that the student received.

What are the requirements to consolidate a loan?

Here are some of the eligibility requirements for receiving a Direct Consolidation Loan:

  • The loans you consolidate must be in repayment or in the grace period.
  • Generally, you cannot consolidate an existing consolidation loan unless you include an additional eligible loan in the consolidation.
  • Under certain circumstances, you may reconsolidate an existing FFEL Consolidation Loan without including any additional loans.
  • If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements (defined as three consecutive monthly payments) on the loan before you consolidate, or you must agree to repay your new Direct Consolidation Loan under the
    Income-Based Repayment Plan, Pay As You Earn Repayment Plan, Revised Pay As You Earn Repayment Plan, or Income-Contingent Repayment Plan.
  • If you want to consolidate a defaulted loan that is being collect garnishment of your wages, or that is being collected in accordance with a court order after a judgment was obtained against you, you cannot consolidate the loan unless the wage garnishment order has been lifted or the judgment has been vacated.
  • You may be able to reconsolidate an existing Delinquent or defaulted FFEL Consolidation Loan and repay your new Direct Consolidation Loan under an income-driven repayment plan.
  • FFEL Consolidation Loan in order to qualify for the PSLF Program; or FFEL Consolidation Loan to use the no accrual of interest benefit for active duty service members, which states that you’re not required to pay the interest that accrues during periods of qualifying active duty military service (for up to 60 months) on the portion of a Direct Consolidation Loan that repaid a Direct Loan Program or FFEL program loan first disbursed on or after Oct. 1, 2008.


What is the interest rate on a consolidation loan? A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed-rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. There is no cap on the interest rate of a Direct Consolidation Loan.

In closing, before you do anything, please speak with your loan servicer as they have the best understanding as to what can and cannot be done. You have to ask the proper questions as you do not want to sign away any rights that you have now, that may come back later to haunt you. You can contact us anytime with your questions. Ask us about our payback and savings plan for your student loan!

Brian Mitteldorf D.C. Financial Advisor
Steven Kanner CFP,ChFC,MBA
Wealth Preservation Planning, LLC “We have your Financial Back” to get our free “The Graduate Student Guide”
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