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Loan Consolidation


If you have outstanding balances on several different federal loans, you may be able to combine them into one new consolidated loan with one monthly repayment. This reduces the size of your monthly payments by extending your repayment period for 10 to 30 years, depending on your total debt.

Other loan consolidation programs are available from participating private or state lenders (such as banks, credit unions and savings and loan associations), guarantee agencies, the Student Loan Marketing Association and other secondary markets. Some consolidation plans allow you to base your repayment on your income. The interest rate on your new consolidated loan will be the weighted average of interest rates on loans you choose to consolidate, and will be fixed for the life of the loan.

Which Loans can be Consolidated?

Both the Federal Direct Loan Program and the Federal Family Education Loan Program (FFEL) offer consolidation loans. Most federal student loans or PLUS loans can be consolidated under a Direct Federal Consolidation Loan.

Loans from the SELF Program may not be consolidated, but the outstanding balance on SELF Loans may be used to determine length of the repayment term for consolidation loans. Private, alternative and institutional loans also cannot be included in a Federal Consolidation Loan. Your student loans can be consolidated only once.

SELF Program loans may be refinanced. The SELF Refi is a new student loan refinancing program administered by the Minnesota Office of Higher Education.

What are the Interest Rates of a Consolidation Loan?

The interest rate is variable, and is based on the weighted average of the consolidated loans not to exceed 8.25 percent.

Advantages of Consolidation

Consolidation loans allow borrowers to lock in low interest rates and extend their repayment period beyond that provided by the original loan. This results in lower monthly payments for the duration of the new consolidated loan. Plus, most deferment and forbearance options are not affected by loan consolidation.

Disadvantages of Consolidation

Consolidation loans do not have a grace period, and payments begin shortly after the consolidation is finalized. You also will make more payments and pay more interest. This means the total cost of repaying the loan will be higher after consolidation even though your payment per month may decrease. Other borrower benefits resulting from the original loan also may be lost.

Be sure you understand the implications of loan consolidation. The following article will help answer your basic questions:
Loan Consolidation: What's the big deal?

For more information, check with your lender or a financial aid administrator. Or visit or contact the Loan Origination Center's Consolidation Department at (800) 557-7392.