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How to Consolidate Student Loan Debt

How to Consolidate Student Loan Debt

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Daniel Cohen
UpdatedMay 28, 2024
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    5 min read
Key Takeaways:
  • Review the differences between federal and private loan consolidation.
  • Understand the benefits of consolidating your loans.
  • Examine how you can have a student loan debt forgiven.

Save Money by Consolidating Your Student Loan Debt

Student loan debt is massive. According to the Federal Reserve, Americans now owe more in federal and private student loan debt than they owe in credit card debt!

Graduating from college is a big accomplishment and a cause for celebration. However, the student loan debt that many graduates accumulate causes stress and worry.

Many graduates have been unable to find a good job by the time they are required to start payments on their extensive student loan debt. The recent downturn in the economy, coupled with changes to the laws regulating the interest rates and fees charged by lenders, have caused many lenders to stop offering student loan debt consolidation programs, including Sallie Mae.

Even if the options are fewer than a few years ago, struggling borrowers are wise to look at any solution that may ease their pain. One possible route is to look into student loan debt consolidation.

Student Loan Debt Consolidation

There are two main classes of student loans: federal loans and private loans. The consolidation options are different for the two. Until mid-2007, most people with student loans received numerous offers to consolidate their debts. Due to a change in Federal lender subsidies, many of these solicitations have stopped, but that does not mean you cannot consolidate your college loans.

Federal Loan Consolidation

  • Federal student loan debt consolidation needs to be done through the Department of Education. Some key points to keep in mind are:
  • Your federal student loans are not currently in default. If you defaulted on your loans, you must establish satisfactory repayment arrangements with your lender, before you can consolidate your loans.
  • At least one of the loans you are seeking to consolidate has not been consolidated before.
  • Different types of federal loans, such as Stafford, PLUS, or Perkins loans can be consolidate together.
  • You cannot combine federal and private loans in one consolidation.
  • The interest rate on your consolidation loan(s) is set by the federal government.

Private Loan Consolidation Eligibility

Private student loans may be eligible for consolidation, too, but it is much harder to consolidate private loans than federal loans. Far fewer lenders are offering private loan consolidation than in years past. Essentially, you have to qualify for a private loan consolidation the way you would for any unsecured loan. Rules vary from lender to lender, so shop around. has private student loan debt consolidation partner you can speak with.

Some general rules about private loan consolidation are:

  • Your eligibility is based on your FICO score, your debt-to-income ratio, and your credit history.
  • The larger your loan amount, the harder it is to qualify for a consolidation loan. The size of many people's student loan debt is so large that lenders are shy to offer an unsecured consolidation loan.
  • Ask about discounts for automatic payments, if you are eligible for consolidation.

Benefits of Consolidation

The main benefit of consolidating your loans are:

  1. Simplified payments: Rather than making multiple payments, you make only one payment per month.
  2. Lower monthly payment: In many cases, a new consolidation loan stretches the term of the loan, making your monthly payment more affordable, but also making it so you pay more interest over the life of the loan. If possible, try to accelerate your payments as your income grow, is, to cut down on the amount of interest that you pay.
  3. Easier tax calculations: Consolidating your loans also makes it easier to keep track of your total annual interest paid. That figure is important if you're eligible for the student loan interest tax deduction. Although the deduction won't save you a lot of money, every little bit helps.

What Happens if You Can’t Pay

If your student loan payments become due and you can't afford to make your required payment, speak to your lender about deferment or forbearance options.

Federal student loans have guidelines that allow you to defer payments if you can’t find work after graduation. Interest continues accruing, but the loan remains in good standing. If you have a federal loan, look into a Income Based Repayment Plan or a Income Contingent Repayment Plan.

You may be able to qualify for a student loan forgiveness plan for federal loans. Contact the Dept. of Education to get information about the Public Service Loan Forgiveness (PSLF) program.

If you can't pay and don’t work out a solution, you could end up with a student loan garnishment.

Student Loan and Bankruptcy Exception

There is a limited exception to when you can discharge your student loan debt in bankruptcy. To do so, you must prove to the bankruptcy court that you have an undue hardship. Undue hardship is defined as the permanent physical inability to work. You must must prove in bankruptcy court:

  • A physical inability to work
  • A likely inability to work for most of the loan term
  • A good-faith effort to repay the debt
  • Paying the debt would prevent the borrower, his or her spouse, and dependents from maintaining a “minimal” standard of living.

Any time you consider bankruptcy, it is wise to consult with a licensed bankruptcy attorney. Most attorneys will offer a free initial consultation.


If you consolidate, be sure to contact consolidation lenders to discuss the interest rates they can offer you on your consolidated loans. Compare those rates with the ones for your current loans.

You may find that your current loans are actually charging you a comparable or even better rate, depending on when your student loans were taken out; loans taken out more recently tend to charge a lower interest rate than older loans.

Newer loans usually also have a fixed interest rate as opposed to those loans made before mid-2006, which generally have an adjustable interest rate. If your new loan has an adjustable rate, remember that because rates are at a historic low currently, as they start to rise, your required payment will rise, too.

Private loan consolidation is possible, but is more difficult than consolidating federal loans. In most cases, consolidation stretches the term of the loan, so you may actually pay more in interest over the life of the loan if you consolidate. If possible, try to accelerate your payments as your income grows to avoid paying additional interest.

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Did you know?

Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Auto loan debt was $1.62 trillion and credit card was $1.12 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

The amount of debt and debt in collections vary by state. For example, in Washington, 16% have any kind of debt in collections and the median debt in collections is $1865. Medical debt is common and 5% have that in collections. The median medical debt in collections is $551.

While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.