Student Loan Consolidation Guide

Americans owe $1.5 trillion in student loan debt. The average graduate comes out of school with about $30,000 debt. With numbers like that, it’s easy to see why student loan consolidation is such a hot topic.

With a legal, medical, or other advanced degree, the debt can could easily hit $100,000-200,000.

Paying that off is not easy for anyone.

Loan consolidation can make things easier. But they also have risks.

Here’s a guide to what student loan consolidation is, how it works for both federal and private loans, and which student loan companies offer the best deals. 

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What Is Student Loan Consolidation?

The first thing to know about student loan consolidation is that there are two main types depending on what kind of loans you have, federal or private.

If you have mostly private loans, you’ll probably see student loan consolidation referred to as “refinancing.” There are a lot of potential benefits to refinancing your private student loans, including reducing interest rates and combining several different loans from various lenders into one manageable payment.

Federal student loan consolidation is a bit different, these loan consolidation programs only accept federal loans. In other words, you can’t put private loans into a federal loan consolidation program.

Federal loan consolidation is handled by the U.S. Department of Education. Additionally, the goal of federal loan consolidation isn’t always reduced interest rates.

While consolidating your federal loans may lower your monthly payments, you might end up paying a bit more in interest over time. Consolidating your federal loans might also help you qualify for certain federal loan repayment programs.

What If You Have Federal and Private Student Loans?

Many borrowers graduate with a combination of federal and private student loans. In this case, you have the option of combining all your loans, including those serviced by the federal government, into a single private loan.

The federal government only offers consolidation for federal loans. While some private lenders will let you consolidate both federal and private loans.

In a nutshell, you have two options:

  • Consolidate all your loans, federal and private, through a private lender
  • Consolidate your federal loans through the Department of Education and your private loans through a private lender

It’s also important to note that transferring your federal loans to a private lender could mean waiving your right to certain borrower protections and programs under federal loan. Most notably, you might lose access to federal student loan forgiveness programs or income-based repayment programs offered exclusively by the federal government. 

How Private Student Loan Consolidation Works

If you have multiple private student loans serviced by different lenders, refinancing could help you reduce your overall interest as well as streamline the repayment process by moving all your loans to a single lender.

Applying for private student loan refinancing is a lot like applying for any other type of loan or even a credit card. When deciding whether to approve you and what interest rate to offer, lenders will consider the following information:

  • Credit score
  • Income
  • Employment
  • Education, including whether you’re still in school or have already graduated 

Your credit score is a big factor in the refinancing process. The higher your credit score, the better terms and conditions, including interest, you can expect to receive. You could get a much better interest rate if your credit score has improved a lot since you originally took out the loans. In this case, refinancing is worth considering and it’ll likely work in your favor.

Once you’re approved for private loan refinancing, your lender will pay off your individual loans. From there, you simply make a single monthly payment to your new lender. 

How Federal Student Loan Consolidation Works

Unlike private lenders, the federal government doesn’t require a certain credit score to qualify for federal student loan consolidation.

If you consolidate, you’ll also get the peace of mind of making just one payment, and you might even end up paying less each month. In some cases, you might be required to consolidate if you want to qualify for certain federal student loan forgiveness programs or income-based repayment programs offered solely for federal loans.

Keep in mind, however, that consolidating federal student loans won’t necessarily reduce your interest. While it can lower your monthly payment, you’ll probably pay more interest in the long run.

Federal consolidation loans also offer a fixed interest rate, which can be reassuring. The government will calculate your interest by averaging the interest rates of all your existing federal loans and then rounding up by one-eighth of 1 percent. For example, if the average of your current interest rates is 6.15 percent, your consolidation interest rate will be 6.25 percent. 

It’s also worth noting that the federal government never charges a fee to consolidate federal student loans. Be wary of any third party companies that charge to consolidate federal loans.  

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The Benefits of Consolidating Your Student Loans

Refinancing or consolidating your student loans can offer a number of benefits.

Simplified Repayment

If you have a bunch of different loans, you might feel overwhelmed by the task of keeping track of them all.

When you consolidate, you only have to worry about one payment. Maybe two if you decide to keep your federal and private loans separate. This can help you avoid late or missed payments, which will hurt your credit score.  

Lower Interest Rates

Consolidating or refinancing can lower your interest rate and maybe even your monthly payment. You might also be able to extend your repayment period, which can reduce how much you have to pay each month.

This can free up some resources so you can focus on other financial goals rather than dedicating a large portion of your income to your student loans. 

Avoid Default   

About 1 million student loan borrowers default each year, and some estimates predict that 40 percent of all borrowers will default by 2023.

Defaulting on your student loans can have serious consequences. For one thing, student loans are one of the few debts that can’t be discharged in bankruptcy. If you default, your lender could pursue collection or even a court judgment against you. Armed with a judgment, they can garnish your wages or seize your tax refund.

Defaulting on a loan will also sink your credit score. This can have a domino effect on other areas of your financial life. You might find it difficult to get a credit card, buy a car, rent an apartment, or qualify for a home loan. In some cases, a bad credit history can even hurt your job prospects, as many employers look at candidates’ credit scores during the hiring process. If finances are really tight, it could be worth paying a larger amount over time in exchange for a lower monthly payment right now. That’s definitely a better alternative than defaulting.

The Best Student Loan Consolidation Companies

You have a lot of options when it comes to student loan consolidation. The following lenders consistently rank among the top choices when it comes to student loan refinancing. 

1. Earnest

In business since 2013, Earnest is known for its flexible repayment terms, including the option to extend the repayment period up to 20 years. You can also make extra payments with no penalty, and Earnest doesn’t charge fees for late payments.

One of the biggest drawbacks, however, is that Earnest doesn’t accept borrowers who need a co-signer. If you can’t qualify on your own, you’ll have to work with another lender.


  • No hard pulls on your credit, so you can apply without worrying about hurting your credit score
  • Loan repayment periods up to 20 years, which is longer than other lenders
  • Variable interest rates as low as 1.89%


  • No co-signer option
  • Not available in Delaware, Kentucky, or Nevada
  • Variable interest option not available in Alaska, Illinois, Minnesota, New Hampshire, Ohio, Tennessee, or Texas

Earnest is owned by Navient, which has come under scrutiny in recent years for deceptive student loan practices. The student loan servicer was sued in 2017 by the Consumer Financial Protection Bureau.

Overall, Earnest receives positive reviews from borrowers, making it difficult to say if Navient’s legal issues have spilled over to Earnest.    

2. SoFi

SoFi was the first private lender to allow borrowers to consolidate both federal and private loans. The company also offers refinancing loans to individuals with an associate’s degree, whereas most lenders require a bachelor’s degree.


  • No hard credit inquiries
  • Refinance private and federal loans
  • Parents can transfer parent PLUS loans to their children


  • No co-signer option
  • Minimum loan amount is $5,000

SoFi has earned an impressive 4 out of 5 stars out of more than 2,300 reviews on Trustpilot, making it worth a look if you’re considering refinancing your student loans. 

3. Education Loan Finance

Education Loan Finance is a great option for folks that increased their credit score since graduating, have flexibility with repayment, and want a better rate at a well-respected company. You’ll get paired with a loan advisor during your application and the Education Loan Finance has some of the best customer reviews out there.  


  • Great customer service reputation
  • Great customer reviews, 4.9 out of 5 stars on Trustpilot
  • Soft credit check when you apply
  • You’ll be assigned a personal loan advisor to walk you through the whole process


  • No postponements if you return to school
  • Limited options for repayments
  • Must have graduated with at least a bachelor’s degree

Check Those Fees

If you’re drowning in student loans and feel like you’re barely managing to keep your head above water, refinancing or consolidating might help you breathe easier by lowering your interest rate and streamlining your payments.

Before you apply, however, do your homework and check multiple lenders. Not only do you want the best rate, you want to avoid unnecessary fees. Read the fine print and make sure there aren’t any hidden fees before you agree to consolidate.

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