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Knowledge Hub / Is Federal Student Loan Consolidation Right for You?
Is Federal Student Loan Consolidation Right for You?

Is Federal Student Loan Consolidation Right for You?

Living with Student Loans
ELFI | December 12, 2019
Is Federal Student Loan Consolidation Right for You?

If you have federal student loans, there is a good chance you’ve heard the word “consolidation” before. But do you know what it really means for you and how it affects your loans? When you have student loans it’s important to understand your different options, whether it’s to refinance student loans or consolidate them, because it can be key to saving you money now and in the long run. Whenever the concept of student loan consolidation comes up, inevitably refinancing does too. Let’s clear up some confusion about how these two options differ.

Are student loan consolidation and student loan refinancing the same thing?

Student loan consolidation is not the same as student loan refinancing. While refinancing student loans allows you to change (AKA lower) the interest rate on your student loans, consolidation does not reduce the interest rate on your student loans. We’ll discuss how consolidation affects your interest rate below.

Bottom line: Consolidation simply means that you are combining multiple federal loans into one loan. It helps you streamline the loan repayment process by giving you one bill to pay each month instead of several bills to keep track of.

Should I consolidate my federal student loans?

When deciding whether to consolidate federal student loans, there are a lot of factors to consider. It’s important to keep in mind that if you have private student loans you cannot consolidate your loans through the government. If you have private loans, your best bet is likely student loan refinancing.

If you do have federal student loans, here are some things to keep in mind when considering whether to consolidate:

“For example, if you have both Direct Loans and other types of federal student loans, and you have been making payments toward PSLF on your Direct Loans, you should not consolidate your Direct Loans along with your other loans. Similarly, if you have Federal Perkins Loans and you are employed in an occupation that would qualify you for Perkins Loan cancellation benefits, you should not include your Perkins Loans when you consolidate. Leaving out your Direct Loans or Perkins Loans will preserve the benefits on those loans.”

How to consolidate your federal student loans

The process to consolidate your federal student loans is a rather straightforward and easy process. There is no fee to consolidate.

If you’ve read the pros and cons and feel that consolidation is the best fit for you, here are the steps to take:

  1. Gather all of the information about the student loans you currently have and want to consolidate. You will need to know the loan servicer, account number, and payoff amount.
  2. Go to the Student Aid website, click the Repayment & Consolidation tab and go to “Complete a Consolidation Loan Application and Promissory Note”. Here you will be prompted to log in to the website to complete the application.
  3. It can be a pain, but you will have to fill out the application in one session so be sure to collect all the required documents before you start the application. It should take around 30 minutes after you have gathered everything you need.

One payment is nice, but I want a better rate too. What can I do?

When you consolidate your federal student loans with a private lender, you are essentially refinancing your student loans. If your goal is to save money in the long run, student loan refinancing with a private lender is likely your best option as it provides the benefit of a single student loan payment but when you refinance federal student loans you can also receive a better rate.

Staying informed about your student loan options is key

Unfortunately, ignoring your student loans won’t make them disappear. Regardless of whether you decide to refinance student loans or consolidate them, staying informed about your options and talking to trusted resources (such as an ELFI Personal Loan Advisor) can be the best way to take control of your finances and stress less about your student loans.


*APR=Annual Percentage Rate.

¹Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. Terms and conditions apply. Interest rates current as of 12-01-2024. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. Rates are subject to change.

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