How to Consolidate Student Loans at a Low Interest Rate


Consolidating student loans can lower your interest rate, extend your repayment term and simplify your financial paperwork by combining all of your different student loan bills. In general, you need to consolidate student loans from the federal government and from private lenders separately, meaning that if you have loans from both, you will end up with two consolidation loans. It is easier to lower the interest rate on private student loans because federal loans calculate the consolidation interest rate based on the existing rates of the loans you consolidate.

Federal Student Loans

Wait until the loans you want to consolidate are no longer in an "in-school" status. The status changes as soon as you drop below half-time enrollment.

Consolidate loans about halfway through your six-month grace period if you have loans with a variable interest rate. The federal government lowers your interest rate if you consolidate these during the grace period. However, you have to start making payments right after the consolidation is processed, so you should wait until near the end of the grace period so that you don't have to start making payments much sooner than you ordinarily would have.

Fill out an application for a federal consolidation loan through the Department of Education's Direct Consolidation Loan website. You will need your personal identification information, including your Social Security number, the names and phone numbers of two personal references and basic loan information for all of the federal loans you want to consolidate. To get the information you need on your loans, look at your most recent statement or look up your loans in the National Student Loan Data System (see Resources). You generally need to know the lending company's name and address, your account number and the approximate amount you owe.

Continue making regular payments as scheduled on your loans until you receive confirmation that your consolidation loan has gone through. At this point, your old loans will all be paid off and you will receive instructions on how to make payments on your new consolidation loan.

Private Student Loans

Obtain your credit report and look it over for any errors, which you can dispute by following the instructions on your credit report.

Pay your bills on time, pay down any credit card debt and do not apply for any new credit in the months leading up to your student loan consolidation. These actions will improve your credit score, which plays a large role in determining the interest rate you get on your consolidation loan. The higher your credit score, the lower your interest rate.

Ask a parent, other relative or trusted friend with good credit to co-sign on the student loan consolidation with you. If you can find someone with excellent credit who is willing to take the risk of co-signing, this can further lower your interest rate. However, the consolidation loan and all of the payment history will appear on the co-signer's credit report and the co-signer is liable for the payments if you stop paying the loan.

Call or visit the websites of popular lenders for private student loans, including Sallie Mae, Chase, Wells Fargo, NextStudent or Student Loan Network, to determine which organization has lowest interest rates, origination fees and other loan terms.

Fill out a student loan consolidation application. If you have a co-signer, he needs to complete part of the application as well. In general, you will need to know the name of each lending company at which you have a private student loan, your account numbers and the balances on your loans. Contact your current lenders to get this information.

Tips & Warnings

  • If your federal student loans have fixed interest rates, you will not be able to lower the interest rate by consolidating them. However, you can still consolidate if you would like to make just one monthly payment and receive the option to choose a longer repayment term to lower your payment amount.
  • Always read the fine print. If you receive a mailing that offers an ultra low interest rate that seems too good to be true it probably is.
  • Make sure you have a plan to tackle ALL of your debt, not just your student loans. You are far better served in the short and long run paying off high interest credit cards as quickly as possible, rather than paying the minimum payments.

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