Consolidating or refinancing student loans can be very beneficial tool while repaying student loans. Federal student loans are eligible for federal loan consolidation through a program under the U.S. Department of Education. Private student loans are not eligible for consolidation under these programs, but there are other non-government options available to consolidate private loans.

Consolidating Federal Loans

The best way to consolidate federal student loans is with the federal government through the Federal Direct Student Loan Program (FDLP). Through this program you can consolidate the following loans:

• Direct Loans (Subsidized and Unsubsidized)
• Federal Stafford Loans (Subsidized and Unsubsidized)
• Direct PLUS Loans and Federal PLUS Loans
• Direct Consolidation Loans and Federal Consolidation Loans
• Guaranteed Student Loans
• Federal Insured Student Loans
• Supplemental Loans for Students
• Auxiliary Loans to Assist Students
• Federal Perkins Loans
• National Direct Student Loans
• National Defense Student Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Nursing Student Loans

What you need to know

- The interest rate after consolidation will be a fixed interest rate and will be based on a weighted average of all of the loans being consolidated.

- Loan terms will be 10 to 30 years depending on the amount of the loans

- You will need to choose a payment plan that will determine your monthly payment:

• Standard Repayment Plan: This is the default repayment plan and will result in the least interest, but a higher monthly payment than the other plans. You will have a monthly payment of at least $50 per month for the term of the loan.
• Graduated Repayment Plan: Under the Graduated Repayment Plan, your payment starts out low and increases every 2 years over the loan term. Although you will pay more interest than the Standard Repayment Plan, the Graduated Repayment Plan is good if your income is currently low, but you expect it to increase.
• Extended Repayment Plan: You have at least $30,000 in loans to qualify for the Extended Repayment Plan and you will have up to 25 years to repay the loans. Under the Extended Repayment Plan, there are two options: a Fixed Monthly Payment option and a Graduated Monthly Payment option. These options are just like the Standard and Graduated plans, where the Fixed Monthly Payment option will result in paying less interest but the Graduated Monthly Payment option will result in a lower monthly payment that increases every 2 years.
• Income Contingent Repayment (ICR) Plan: Under this plan your payment depends on your income (and your spouse’s income, if married) and can change each year.

Generally I do not recommend the Income Contingent Repayment Plan because of the variable monthly payments according to your income. Whether or not you qualify for the Extended repayment plan, essentially your options are a fixed monthly payment or a monthly payment that starts low and increases over time.

The Standard Repayment Plan is the best plan if you can make the payments, and you do not have any other outstanding debt with higher interest rates (excluding a mortgage).

The Graduated Repayment Plan is the best plan for you if you would have trouble making the standard payments and/or you have other debts with higher interest rates such as credit card debt. In this case selecting the lower early payments with the Graduated Repayment Plan would allow put more cash toward higher interest debts first, saving you more interest in the end.

And do not worry, with any of the plans you are able to make additional payments over and above the minimum payments at any time without penalty. The FDLP website has an online calculator to estimate what your interest rate and monthly payments would be with each one of these repayment plans.

Consolidating Private Loans

In general you cannot (and should not) consolidate private student loans with federal student loans. Interest rates on private student loans are higher than that of federal student loans. In addition the interest rates for private student loans are determined by your credit score so refinancing/consolidating your private loans will not result in a lower interest rate unless your credit score has increased (learn how to get free credit scores here). The primary benefits to refinancing private loans is to have a single monthly payment, and potentially lower your payment(s) if needed. The other advantage would be refinancing a variable interest rate private student loan into a fixed rate loan.

Many banks and student lending companies offer private consolidation loans and when searching for a loan, you should look for the following:

• Fixed interest rate - whether or not your current loan(s) interest rate(s) are fixed or variable, you should be looking for a fixed interest rate
• No early payoff or prepayment penalties - If you are able to make extra payments to payoff your loan early, you should not have to pay additional fees
• No bogus fees - Make sure that no extra fees are being added to the principle amount of the loan(s) being consolidated

The best way to consolidate private student loans is to begin comparing your options and looking for the consolidation loan that’s right for you with the above criteria.