consolidate graduate student loans

How to Consolidate Student Loans

consolidate graduate student loans Do you feel weighed down by student loan debt? If so, you might consider consolidating or refinancing your loans to lower your monthly payments. In many cases, that can be a smart financial move. But before deciding to consolidate or refinance, it pays to take a close look at the pros and cons.


Federal student loan payments, including principal and interest, are automatically suspended through May 1, 2022. The Department of Education stopped the collection of defaulted federal student loans or loans in nonpayment. Garnishment of wages and any offset of tax refunds and Social Security benefits have also been stopped through May 1, 2022.

The loan payment suspension began as part of the pandemic response in March of 2020 and was instituted by former President Trump and the Department of Education. The suspension extension, which expired on Sept. 30, 2021, did not apply to private student loans.


Key Takeaways

  • Consolidating, or refinancing, high-interest private student loans into a single loan with another private lender can lower your monthly payments.
  • Student loan payments are suspended on federally held student loans through May 1, 2022.
  • If you have federal student loans, another option may be to consolidate them through the government’s Direct Loan Program.
  • If you consolidate federal loans into a private loan, you will lose some of the special benefits that federal loans have to offer.

How Does Student Loan Consolidation Work?

There are two basic ways to consolidate your student loans. You can do so through a private lender or through the federal government. Only federal loans are eligible for federal consolidation.

In the case of a private student loan consolidation (often referred to as refinancing), a private lender, such as a bank, pays off your private or federal student loans. It then issues you a new loan at a new rate and with a new repayment schedule. Refinancing makes the most sense if you have high-interest private loans and can obtain a significantly lower rate or better terms with the new loan.

However, with federal student loans, you have another option, which is to combine them into a new direct consolidation loan, through the Federal Direct Loan Program. Your new interest rate will be the weighted average of your previous loans, and you will remain eligible for some of the special features of federal loans, as we’ll explain later.

While you can’t consolidate private loans into a federal loan, if you have both private and federal loans, you can consolidate the private ones with a private lender and the federal ones through the government program.

If your student loan is still within its grace period, wait until that ends before you refinance it.

Advantages and Disadvantages of Student Loan Consolidation

Here’s a look at the major pros and cons of both private and federal loan consolidations.


Lower Monthly Payments

Private loan consolidation can help reduce your monthly loan payments in two ways by offering you a lower interest rate. This means lower payments overall as well as saving you money over the life of the loan. Many graduates also find that they can get better interest rates because their credit scores improve over time.

Another way that a private consolidation or refinancing can cut your monthly payments is by extending the length of your loan. For example, if you refinance a 10-year student loan into a 20-year loan, you will see a dramatic cut in your monthly payments. But signing up for a longer loan also comes with a big caveat, as we explain a little later on.

You may be able to reduce the monthly payments by consolidating your federal loan if you qualify for one of the government’s income-based repayment plans. These plans set your monthly payments according to how much you earn or how much you can afford to pay.

Fewer Monthly Payments

Keeping track of multiple student loan payments, on top of all your other bills, can be a hassle. Consolidating your student loan debt can help you reduce your bills to just one (or two, if you consolidate your private and federal loans separately, as is advisable).

Many private lenders even offer a slightly lower interest rate if you enroll in an automatic payment plan. This option saves you a small amount of money each month, and it helps you to avoid ever forgetting a payment.

Flexible Repayment Terms

When you consolidate your loans with a private lender, you can choose how long you want the loan to last and whether it carries a fixed or variable rate. Choosing a variable rate can be riskier since rates can go up anytime, but it can also get you a lower interest rate at the start of the loan. Federal consolidation loans carry a fixed interest rate.

Releasing a Cosigner

Another benefit of refinancing your private loans is that you might be eligible to sign for the loan on your own. Dropping a cosigner, who is typically a parent or another close family member, not only gets them off the hook for your debt, but it may raise their credit score and allow them to access new lines of credit if they need to. Federal loans don’t typically involve cosigners.


You Could Pay More in the Long Run

While a longer-term loan can mean lower monthly payments, you could end up paying tens of thousands of dollars more over the life of the loan because of the accruing interest.

You Could Lose a Federal Loan’s Advantages

If you consolidate a federal student loan with a private lender, you’ll lose the option to sign up for an income-based repayment plan. You’ll also no longer be eligible for federal loan forgiveness and cancellation programs. These are major reasons to consolidate your federal loans only through the federal program.

Any Existing Grace Periods May Go Away

As soon as you take out a refinanced loan with a private lender, you must start repaying it. With many student loans, you can delay payments while you are still in school or if you have entered a graduate program. If your current loan is still within its grace period, wait until that period ends before starting the refinancing process.


  • You’ll have lower monthly payments.

  • You’ll make fewer monthly payments.

  • Repayment terms can be flexible.

  • You can release a cosigner from the loan.


  • You could pay more in the long run.

  • You could lose a federal loan’s advantages.

  • Any existing grace periods may go away.

How to Consolidate Student Loans

You can consolidate your student loans through many financial institutions, including your local bank or credit union, as well as lenders that specialize in these types of loans. Among the well-known names in the field are Earnest, LendKey, and SoFi.

You can find more information about the steps for consolidating your federal loans on the Federal Student Aid website.

The Benefits of Student Loan Consolidation

Aside from a fresh diploma, the typical graduating senior leaves college with something not as nice: a mountain of debt.

The Project on Student Debt says about two-thirds of students graduating from four-year institutions carry student loans. Debt loads average more than $20,000 for graduates of public institutions, and closer to $30,000 for those attending private ones. The number of new graduates carrying debt grew by 27%, from 1.1 million in 2004 to 1.4 million in 2008, the latest year surveyed.

Managing the payments is not just a financial burden but a logistical headache, as different types of loans taken out for different amounts can carry different interest rates and due dates.

Fortunately, the federal government has a fee-free program for “consolidating” federal student loans. In addition to replacing multiple payments with just one, it can reduce the monthly payment.

Unlike the typical mortgage refinancing, the student loan consolidation does not reduce interest rates, at least not right away. The rate on the new loan is a weighted average of rates on the old ones, but no higher than 8.25%. That means bigger loans have more influence on the new rate than smaller ones.

What’s the point if the overall rate is no lower? First, the new rate is fixed for the life of the loan, while some of the federal loans eligible for consolidation carry variable rates. Consolidating can thus eliminate the risk of having to pay higher rates later.

Consolidation can also extend the loan term to as long as 30 years, requiring a smaller monthly payment.  Of course, the longer the term, the more interest you pay over the life of the loan.

Fortunately, there are no prepayment penalties. A young college graduate can therefore extend the loan term to reduce monthly payments during the years when money is tight. Then as income rises, the borrower can make extra payments to clear the debt early, eliminating years of interest charges.

Though consolidation can be a good deal, there is an alternative: Use the extra money to pay down some loans ahead of schedule, focusing on those with the highest interest rates. Reducing student loan debt will make it easier to qualify for credit cards, auto loans, or a mortgage.

But using extra cash to pay down student loans should be balanced against some other financial issues. Many experts, for example, say it’s wise to contribute at least enough to a 401(k) or similar workplace retirement plan to get the maximum matching contribution offered by the employer. Not getting the match is like turning down a raise.

However, for many people, retiring student debt should be a higher priority than saving up for a down payment on a home. Buying a home can be a risky move for people in their 20s, as their housing needs can quickly change if they marry, have children, or need to move for a job.

On a purely financial basis, paying down student debt probably makes more sense than putting money into an expensive car. Paying off debt is an investment with a return equal to the loan rate. A car is a depreciating asset, or in other words, a money loser.

—For the best rates on loans, bank accounts, and credit cards, enter your ZIP code at

Office of Student Financial Services

Federal Loan Consolidation is a process where existing federal loans can be combined into one loan. Federal Loan Consolidation is FREE and can be done online at You will need to use your FSA User ID and Password but all other information will already be on file. All federal loans (Stafford, Parent PLUS, Graduate PLUS, Perkins) in the borrower’s name will be listed as available for consolidation. Please note that loans in a parent’s name cannot be consolidated into the student’s name or legal responsibility, even through consolidation.

You do not need to consolidate loans to take advantage of reduced payments or Public Service Loan Forgiveness if your qualified loans are already being handled by one servicer. You should contact your loan servicer directly to see if you are eligible to participate in loan forgiveness or reduced payment schedules. You can find your servicer’s name and contact information by logging into the National Student Loan Database.

Private Consolidation Services

There are companies that advertise services to help students consolidate their federal loans. While these services are not breaking the law, the services they provide are not free. We do not recommend using services other than for consolidation. Private companies will ask for your personal information (name, social security number, address, FAFSA or FSA User IDs, and passwords). Do not provide this data to anyone. You can get the same services for FREE through your loan servicer.

Some banks may also offer “consolidation” plans but this is not Federal Loan Consolidation. We strongly encourage you to be aware that private consolidations will most likely not offer the benefits of Federal Loan Consolidation such as:

  • In-School Deferment
  • Economic Hardship Deferment
  • Income-Based Repayment Plans
  • Public Service Loan Forgiveness
  • Employment and Service Cancellations (Perkins)