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Overwhelmed by student loans? Join the club! According to Forbes, as of 2018, around 42 million graduates have debt worth $100,000 or less. What’s even more shocking is that 2 million of those borrowers have student debt worth MORE than $100,000!

Millions of college/university students rely on student loans for financial support. As they graduate, most students will have a mix of both private and federal student loans. They may have multiple loan servicers along with several due dates and monthly payments which they have to keep track of.

Even the most organized of borrowers can get frustrated trying to keep track of their loans and miss monthly payments every now and then. As a result, their credit score suffers and the interest rates of their loans increase.

If you’re a graduate struggling to keep up with multiple loan payments, you should consider consolidating them into a single loan.

Student Loan Consolidation

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Student loan consolidation is the merging of federal student loans into a single Direct Consolidation Loan. By consolidating your loan, the federal government issues a brand new loan; students will then have to make just one payment every month as opposed to many.

Direct Consolidation Loans have a fixed interest rate that remains the same throughout the duration of the loan. The rate is in based on the weighted averages of loans that were consolidated.

By choosing to consolidate their federal loans, students can limit some of the stress and anxiety that comes with paying off student debt. Also, they may now be eligible to apply for other federal programs that can provide even more financial relief, like income-driven repayment (IDR) plans.

On the surface student loan consolidation looks like a great option for all graduates but not everyone benefits from it.

Here are some of the pros and cons students have to think about before opting for loan consolidation:

1. You need to lower monthly payments

As soon as a student graduates, they’re enrolled in a Standard Repayment Plan with a term of 10 years. If they are unable to make monthly payments they can have the amount reduced by consolidating their federal student loans.

With a Direct Consolidation Loan, the term of loan can be extended to 30 years which substantially lowers the monthly payment amount. The purpose of extending the term of the loan and reducing monthly payments is to give students some room to settle into their careers.

Note that although the monthly payment amount will be lower, you’ll be paying more interest over time.

2. You’re not eligible for loan forgiveness and IDR plans

Students who received loans via Perkins Loans or the Federal Family Education Loan Program cannot receive the following benefits:

  • IDR Plans: These extend payment terms and cap monthly payments at a percentage of the student’s discretionary income. Based on the size of the student’s family, they can qualify for monthly payment amount of $0.

The remaining balance of the loan can be forgiven after 20–25 years of payment; however, the amount that was forgiven is still taxable.


  • Public Service Loan Forgiveness (PSLF): Borrowers working in government agencies or for non-profit organizations may qualify for loan forgiveness after successfully making at least 120 monthly payments. For these borrowers, the amount that is forgiven is tax-free.

3. You prefer fixed a interest rate

Some older federal loans have variable interest rates that fluctuate with market conditions. When you consolidate federal student loans, you have a fixed-rate that remains constant throughout the term.

What’s better—Consolidation or Refinancing?

The terms “student loan consolidation” and “refinancing a loan” are incorrectly used interchangeably. Student loan consolidation is ONLY an option for federal loans; private loans cannot be consolidated—they can be refinanced.

There are some big perks to consolidating a loan; however, you probably will not save money in the long-run.

Refinancing a Student Loan

When refinancing, borrowers will need to get a refinancing loan through a private lender which equals the sum of a few or all their student loans (private and federal).

The refinanced loan will have completely new terms (minimum monthly payment amount, interest rate, repayment period). But borrowers that wish to refinance their loans miss out on benefits such as Public Service Loan Forgiveness (PSLF) programs and IDR plans.

Wondering whether loan consolidation or refinancing is the right option for you? Let our loan specialists help you out! American Student Services assists students with repayment plans, loan consolidation, refinancing and student loan forgiveness.

Get in touch with us for more information on our service.