Student loan debt from multiple lenders is a burden that many students graduate with. The good news is that student loan consolidation is available for both federal and private student loan programs. It is not a good idea, however, to consolidate student loan debt from both federal and private lenders; they should be consolidated separately.



Federal student loan consolidation has some benefits over private student loan consolidation for a few reasons. There are three main reasons for federal loan consolidation, which are to lock in an interest rate, simplify finances and lower monthly payments. After consolidating student loan accounts, borrowers only need to make a single student loan payment each month. It is much easier to remember to make payments on time without having to balance multiple payments.

Borrowers can also spread out federal student loan repayment over as much as 30 years, and the interest rate on these student loans is generally very low. Federal student loan consolidation results in a single fixed interest rate guaranteed for the life of the loan, so there’s no need to worry about their rate fluctuating with the market. The interest rate on federal loan consolidation is determined by the weighted rates of the student loans that are being consolidated. The government has set a rate cap of 8.25 percent on federal student loan consolidation.

All federal student loans are eligible for consolidation, but the best interest rates are available while they are in their grace periods rather than in repayment. There is no minimum balance, employment history or cosigner needed for to qualify for federal student loan consolidation. Applying for federal loan consolidation is free, and borrowers do not have to go through credit checks.

It takes one or two months for a federal student loan consolidation to go into effect, at which time student loan repayment will begin. There are four student loan repayment options, which are standard, graduated, income-contingent and extended. Graduated repayment is where payments increase gradually, income-contingent repayment is where payments are based on annual income, and extended repayment is where payments stretch over a longer period. There is also no prepayment penalty on federal loan consolidation.

It is a bit more different to consolidate private student loan debt, but the main benefit is the same. It is much easier to make a single student loan payment each month than to pay off several different loans separately. It’s also possible to obtain a fixed interest rate and improve one’s credit score by having fewer accounts open. Private loan consolidation is a bit more difficult to obtain than federal loan consolidation, though. In order to be eligible, one must be a U.S. citizen, pass a credit check and often pay a small application fee.

The terms and conditions vary much more with private student loan consolidation than with federal student loan consolidation. There are several things that everyone interested in private loan consolidation should consider, though, including forfeiture of the individual benefits of the separate loan accounts. Some lenders may also extend a variable interest rate rather than a fixed one. Borrowers can also only consolidate private student loan debt once, and can never “un-consolidate" their student loans.

When students and graduates do their homework, they can make the most of their student loan debt through a consolidation loan. There are several differences between federal and private student loans, including the ways they are consolidated. Any student who is nearing graduation or who has recently graduated should definitely look into their student loan consolidation options; it may be the best way to ensure a solid financial future.