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Private and Federal Student Loan Consolidation

Private and Federal Student Loan Consolidation
Jennifer Calonia
Jennifer CaloniaUpdated January 27, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Consolidating private and federal student loans might seem like a straightforward approach to repaying what you owe. But in fact, the process of combining student loans differs, depending on the type of debt you have. Federal student loans can be consolidated, but private student loans can’t. In order to combine private and federal student loans into one loan, you can instead use a repayment strategy called student loan refinancing.Read on to learn more about consolidating student loans.

What Is Student Loan Consolidation?

Student loan consolidation allows you to combine two or more federal student loans into one loan with a fixed interest rate. You do this through the Department of Education’s Direct Consolidation Loan program. Student loan consolidation simplifies your payment process because you are no longer trying to keep track of different payments and due dates.

How a Direct Consolidation Loan Works

Consolidation is one type of student loan modification. It offers a way to turn your variable-rate federal loans into one fixed-rate loan. It also helps you lower your monthly payment with a longer loan term of up to 30 years. However, consolidation doesn’t lower your interest rate. Instead, the weighted average of all of your consolidated loan rates is calculated to determine your new rate.With consolidation, you may convert any federal loan that isn’t part of the Direct Loan Program into a loan that’s eligible for income-driven repayment plans and loan forgiveness programs. But there are caveats to consider. For instance, you might spend more on interest in the long term with consolidation, and be in debt longer. In addition, you could lose access to certain benefits, like interest rate discounts you may have with your current loans.You can apply for a Direct Consolidation Loan online through your StudentAid.gov portal or by filling out and mailing a paper application. There is no fee. How long it takes to consolidate student loans varies, but it’s generally one to two months.

What Types of Student Loans Can Be Consolidated?

Federal loan borrowers can only consolidate specific types of student loans. These are the student loans that are eligible under the Direct Consolidation Loan program:
  • Direct subsidized and unsubsidized loans and Direct PLUS loans
  • Federal Family Education Loan (FFEL) subsidized and unsubsidized federal Stafford loans, and FFEL PLUS loans
  • Parent PLUS loans
  • Federal Perkins loans
  • Health education assistance loans (HEAL)
  • Some FFEL and Direct Consolidation Loans
  • Federal insured and guaranteed student loans
  • Nursing student and faculty loans
  • Health professions student loans
  • Loans for Disadvantaged Students
  • Auxiliary Loans to Assist Students
  • National Defense Student Loans
  • Supplemental loans for students
  • National Defense Student Loans

Private vs. Federal Student Loans

There are some significant differences between federal vs. private student loans. A federal student loan is provided by the U.S. Department of Education. A federal loan gives borrowers access to fixed interest rates and benefits like loan subsidies on interest charges, flexible repayment plans, and generous deferment, forbearance, and forgiveness options. Federal student loans are often more accessible to students since they generally don’t require a credit check to qualify.Private student loans are offered by financial institutions like banks, credit unions, and online lenders. Each lender typically has their own requirements to qualify, including credit history and income. Benefits and loan features vary by lender, so details like repayment plans, deferment, and forbearance options typically differ, too. Also, private student loans are not eligible for federal forgiveness and protection programs.

Can You Consolidate Private Student Loans?

You cannot consolidate private student loans. This is because the Direct Consolidation Loan program is available only for federal student loans from the Department of Education.

Can You Consolidate Federal and Private Loans Together?

If you were hoping to combine a private and federal student loan for consolidation, it’s not possible, unfortunately. Only eligible federal loans can be consolidated together through the Direct Consolidation Loan program. The only way federal and private student loans can be combined into one loan is through student loan refinancing. If you’ve already consolidated your federal loans and you want to combine them with your private student loans, refinancing after consolidation is also possible. 

Student Loan Consolidation vs. Refinancing

Student loan consolidation is available only for federal student loans. Refinancing is offered by private lenders for private student loans. With consolidation, you combine multiple federal student loans. During a refinance, you can combine all private student loans, all federal student loans, or a mix of private and federal loans. With refinancing, your new lender will pay your student loan lender for the original loans. The lender will then create a new refinanced loan. You’ll repay the new loan based on the lender’s new interest rate and terms. Depending on your credit, you might even qualify for a competitive rate. You can shop around for the best student loan refinancing terms for your situation.A major distinction between consolidation and refinancing is that consolidation lets you retain access to most federal protections, benefits, and programs since you’re still in the federal student loan system. But when you refinance federal loans into a private loan, you lose access to those perks. 

Student Loan Refinancing With Lantern

Although federal and private student loan consolidation isn’t possible, a student loan refinance offers an alternative by letting you combine federal and private student loans into one new refinanced loan. To determine whether student loan refinancing is the right choice for you, be sure to weigh the pros and cons of student loan consolidation vs. refinancing before moving forward. If you decide to go ahead with student loan refinancing, Lantern helps you conveniently compare your options across multiple lenders. You can quickly see the lowest interest rates and best repayment terms available for you, based on your loan amount, location, and credit score.Check your rates today with Lantern!

Frequently Asked Questions

Can federal and private student loans be consolidated together?
Are consolidation loans federal or private?
What types of student loans can be consolidated?
Will my credit score drop if I consolidate my student loans?
Photo credit: iStock/Ryan Spiering
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About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
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