Should I consolidate my federal student loans into a federal Direct Consolidation Loan?
Before consolidating your federal student loans, consider how it will impact your interest rate and your access to different repayment options and other benefits.
Do you want to combine more than one federal loan into a single payment?
Loan consolidation can simplify your monthly payments by rolling multiple loans into one loan. After consolidating your loans, you will only have to make a payment to one student loan servicer. This may make it easier to keep track of your student loans.
Do you want a fixed interest rate loan instead of a variable rate loan?
Some older federal student loans have a variable interest rate. If you have a variable rate student loan, your interest rate can go up or down over time. Direct Consolidation Loans have a fixed interest rate, meaning your interest rate will not change over the life of the loan.
The fixed interest rate for a Direct Consolidation Loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent. While consolidating your loans may slightly increase your interest rate, it will lock you into a fixed interest rate so your new payment won’t change.
Do you want access to different repayment options?
A Direct Consolidation Loan could make you eligible for several that may not be currently available to you. If you have federal loans through the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to consolidate those loans to qualify for several repayment programs. Consolidating federal loans may cause you to give up other benefits. Borrowers with Perkins loans should talk to their servicers about the risks associated with consolidation.
Do you want to qualify for Public Service Loan Forgiveness?
Only federal Direct Loans are eligible for Public Service Loan Forgiveness.
If you have federal loans originated under the Federal Family Educational Loan (FFEL) program or the Perkins loan program, you may be able to qualify for Public Service Loan Forgiveness by consolidating into a Direct Consolidation Loan.
If you have Direct Loans and you are already making qualified payments on those loans under an income-driven repayment plan, consolidating your Direct Loans into a new loan will cause you to lose credit for any payments you have made towards loan forgiveness.
Do you want to get out of default?
Consolidation allows you to pay off defaulted loans with a new loan and new repayment terms. If you cannot afford to repay your loan in full, is the fastest way to get out of default and enroll in one of the U.S. Department of Education’s other payment plans.
Warning: Consolidating federal loans may cause you to give up other benefits. Borrowers with Perkins loans (which qualify for a separate cancellation program) or those serving in the military should talk to their servicers about the risks associated with consolidation.
Warning: Consolidation restarts the clock on all loan forgiveness programs. If you have made progress towards forgiveness with any of your loans, it may not be worth it to consolidate.
TIP: If you’re planning to enroll in an income-driven repayment plan and work with multiple servicers, it might be easier to have a consolidation loan, so you won’t need to submit documents about your income and household size to multiple servicers.