Should I consolidate my federal student loans into a federal Direct Consolidation Loan? | Consumer Financial Protection Bureau (2024)

FAQs

Should I consolidate my federal student loans into a federal Direct Consolidation Loan? | Consumer Financial Protection Bureau? ›

Federal student loan consolidation

Student loan consolidation has many benefits for student loan borrowers. For example, if you currently have federal student loans with multiple loan servicers, consolidation can greatly simplify loan repayment by giving you a single loan with one monthly bill.

Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.

Overall, a PSLF consolidation could be worth it if any of the following situations apply to you: You're still in your grace period or early on in repayment. If you haven't made payments yet or have just started, you can consolidate your loans without losing a bunch of qualifying payments for PSLF.

Federal student loan consolidation

If you consolidate non-Direct Loans into a Direct Loan consolidation, you gain access to protections and benefits available on Direct Loans, such as Public Service Loan Forgiveness (PSLF), which can eliminate the balance of your Direct Loans after 120 qualifying payments (10 years).

Your debt consolidation loan could come with more interest than you currently pay on your debts. This can happen for several reasons, including your current credit score. If it's on the lower end, lenders see you as a higher risk for default. You'll likely pay more for credit and be able to borrow less.

Here are some of the most common mistakes borrowers make when consolidating debt and how to avoid them: Locking in the first interest rate you're offered. Choosing the lowest monthly payment. Borrowing more money than you need.

Which is a potential drawback of using a federal Direct Consolidation Loan? The borrower could forfeit any grace periods on existing loans.

Why did my credit score go down when I consolidated my student loans? ›

Impact on Credit History: Consolidation could initially cause a minor dip in your credit score due to the hard inquiry associated with the new loan application. This effect on your payment history is usually temporary and can be offset by making timely repayments on your new consolidated loan.

If you want to consolidate your loan(s) in order to get the benefit of the adjustment, we encourage you to submit a loan consolidation application by April 30, 2024.

From there, the process of consolidation takes approximately six weeks. Borrowers can check the status of their application at StudentAid.gov. Until the consolidation process is complete, you must continue to make payments on your current loans.

Private student loans are not eligible for consolidation. Learn what to do if you're not sure what kind of loan(s) you have.

You can be denied a student loan consolidation for different reasons, such as a low income, too much debt, or a low credit score.

Your new consolidation loan will generally have a new interest rate. You can lose credit for your payments toward income-driven repayment (IDR) forgiveness. You don't have to consolidate all your federal student loans.

A credit score of 650 or higher is optimal for most lenders who offer student loan refinances. If you can get a better interest rate, change your loan term or consolidate several loans into one, refinancing could be beneficial.

The entire process typically takes between four and six weeks from the date your application is received. Before completing a consolidation application, carefully consider the following information to determine whether loan consolidation is the best option for you.