Loan Consolidation

Federal Loan Consolidation is a process that allows you to combine multiple federal education loans into one loan. Once the consolidation is complete, you will have a single monthly payment on the new Direct Consolidation Loan instead of multiple monthly payments on the loans you consolidated, and a smaller payment amount each month.

However, Loan Consolidation also means the loss of all interest-free periods as well as the loss of cancellation benefits. Also, a longer repayment period means you will pay more interest over the life of the loan.

Loan Consolidation will also create a new single interest rate by loan type (i.e. Subsidized or Unsubsidized) using a weighted average of the the individual loans that are consolidated together. Loan Consolidation will not lower the interest rate and it will actually be  slightly rounded up during the consolidation process. In addition, you will no longer be able to target loan repayment towards individual loans (i.e. higher interest and/or higher balance) after consolidation occurs.

Typically there is no financial advantage to Consolidating your student loans. The most common reason to consolidate student loans is to group loans that might be spread across multiple loan servicers under a single loan servicer for the general convenience of the borrower. Another common reason is to transition older FFEL loans into newer Direct Consolidation loans in order to take advantage of certain federal benefits such as the Public Service Loan Forgiveness Program (PSLF) or to to access a wider array of Income-Driven Repayment Plan options.

Loan Consolidation is different from Loan Refinancing. Borrowers can only Consolidate individual federal loans together and your new Consolidated Loan will remain as a federal loan. Loan Refinancing on the other hand involves transferring student loans from the federal sphere (i.e. Direct, FFEL, & Perkins Loans) and into a private financial institution. Borrowers can apply for loan refinancing with a private financial institution (bank or student loan lender), but it is ultimately the decision of that private company to take on new borrowers and to finalize the interest rate and any other terms. Refinancing has the potential to lower the interest rate of a loan, but borrowers will no longer have access to federal student loan benefits such as Loan Deferment, Loan Forbearance, Income-Driven Repayment Plans, and the Public Service Loan Forgiveness Program. Loan Refinancing is only available for transitioning federal loans into private sector loans; or from transitioning from one private sector lender to another. After a student loan is refinanced it cannot then transition back into the federal sector in the future.

Federal loan consolidation information is available online. If you have questions about consolidating your federal education loans before you apply, you can also call the Loan Consolidation Information Call Center at 800-557-7392 or reach out to the Tufts Student Loan Repayment Advisor at lrap@tufts.edu.