How to Consolidate Your Student Loans From the Government

Understanding student loan consolidation is an important part of repaying your loans.
Understanding student loan consolidation is an important part of repaying your loans. (Image: student image by Ivanna Buldakova from

The average four-year college student graduates with just over $23,000 in student loan debt, according to the U.S. Department of Education. Borrowers must repay these loans, plus interest, soon after graduation.

One way to simplify your student loan repayment and lock in a fixed interest rate is through federal loan consolidation. Consolidation rolls all your separate student loans into one monthly payment. These consolidation loans are not credit based--you complete an application with a student loan lender, provide your student loan information and decide on a repayment plan. After your loan is approved, all you have to do is make your payments each month.

Figure out how much you owe. Your lenders will start sending you repayment notifications once you graduate or drop below half-time status. You have six months after one of these events before you have to start paying on your loans, so it’s important to start the consolidation process as quickly as possible.

You are able to consolidate most federal student loans, including Stafford, Parent PLUS, Supplemental Loans for Students, Perkins, Federally Insured Student Loans, Nursing Student Loans, Direct Loans, Health Professional Student Loans and Health Education Assistance Loans.

You can find out the types of loans you hold, their balances and interest rates by visiting with your school’s financial aid office. If you aren’t able to find out this information from them, you can locate it in the National Student Loan Data System.

Chose a consolidation lender. You can opt to consolidate through the federal government directly by completing the appropriate application on their website or through your school's financial aid office. You can also opt to consolidate your federal loans through a private lender. You can find lenders by searching on the web or asking your school’s financial aid office for recommendations. The federal government mandates the interest rates for federal student loans, so consolidating your loans will be the same no matter what lender you chose.

Decide on a payment plan. Federal student loans offers four repayment plans to choose from. Each payment plan offers different terms, including payment amount and length of repayment.

Choosing the standard repayment plan means you'll pay a fixed amount per month (minimum $50) for up to 10 years. Extended repayment is similar to standard, but you'll have 12 to 30 years to repay. An extended repayment plan means your payments will be smaller, but you'll end up paying more in interest in the long run.

Graduated repayment starts with smaller payments and increase gradually every two years until the loan is repaid (up to 30 years). The graduated monthly payment must be at least $25 and cover the amount of interest that has accrued on the loan since the last payment.

The income-contingent repayment plan is available only for Direct Loan borrowers and is based on a percentage of the borrower's income (minimum payment of $5 per month). The payment amount increases yearly as income increases with a maximum repayment period of 25 years. After 25 years, the remaining amount owed on the loan is discharged.

It’s important to check out each repayment option and decide which works best for your needs. However, you're not locked in to that repayment plan--you can change repayment plans once a year.

Complete the application process. The application process is similar for every lender. In the application, you'll provide the information on your student loans, the amounts owed and the current lenders. From there, your consolidation loan lender will take care of working with each of your lenders to pay off each loan and transfer the debt.

After the consolidation process is complete, you'll sign a promissory note similar to the ones you signed when you originally took out your student loans. This will outline the repayment amount, interest rate, and your chosen payment plan.

Make payments on time every month. Choosing a repayment plan that fits your current budget is vital to ensuring that you can keep up with your student loan payments. In addition, some lenders give a 1/2-percent interest rate reduction for borrowers who make consistent on-time payments.

Tips & Warnings

  • The actual interest rate on your federal consolidation loan is a weighted average of the individual loan rates, rounded up to the nearest 1/8 percent. However, 8.25 percent is the highest interest rate possible on a federal consolidation loan.
  • You cannot consolidate federal and private student loans together. If you have private student loans, consider consolidating them together.
  • Most lenders require you to have a certain amount of student loans before you can consolidate them.
  • You can pay off your federal student loans at any time - there is no penalty for paying off your loans early.
  • You cannot consolidate a consolidation loan for a lower interest rate. However, you can consolidate additional student loans into a current consolidation loan.

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