How to consolidate your student loans

About six months have passed since I consolidated my student loan debt, and in that time, many fellow college graduates have reached out to me for information about how to consolidate their own student loans. Consolidating student loans can simplify the process of paying back student loans, reduce the interest rate you pay each month, and eliminate the hassle of working with ever-changing loan servicers. I’m not a financial expert by any means, but I thought I’d share a bit of wisdom from my own experience to help my peers get started with this process.

1. The first step is to compile information about all of your loans eligible for consolidation. Any loans provided through the government (Stafford, Direct, etc.) are eligible for consolidation; I received two loans directly through Iowa Student Loan that are considered private loans, so those are not eligible for consolidation. It’s likely that during your time in college, your student loans switched hands a few times between servicers, so the easiest way to figure out who services each of your loans is to visit the National Student Loan Data System (NSLDS) site: https://www.nslds.ed.gov/. This is a service of the U.S. Department of Education that documents all federal student loans you have taken out. For each loan listed, you will find information such as the principal balance, the date the balance was disbursed, the interest rate, the outstanding interest that has accrued (if unsubsidized), and the servicer for the loan (important!). NOTE: You may need your PIN to gain access to this database. You would have received a 4-digit PIN when you completed the student loan entrance counseling way back during your senior year in high school, so if you don’t know what your PIN is anymore, you can have that recovered for you through the site.

2. You have a few options when you’re ready to consolidate your federal loans. At the time of my research (spring 2011), there were only four private lenders who offered student loan consolidation – Wells Fargo, Chase, NextStudent and Student Loan Network. These private lenders may also consolidate private loans, if you have any of those, but there’s one caveat to be aware of: whether they will consolidate your loans and the starting interest rate are determined based on your credit score, and your interest rate will not be fixed. More info can be found here.

The other option is to consolidate through the Federal Direct Consolidation Loan program. With the federal consolidation program, there is no risk of being denied a consolidation, and the interest rate is determined by averaging the interest rates on the individual loans you have taken out. I chose to go with the federal program because it was easier than seeking out information from each of the private lenders, and because I wasn’t sure what type of interest rate I would find because I don’t have an extensive credit history yet. I was able to get the process moving more quickly, which was important to me because I dropped down to part-time status before actually graduating and had to start paying my loans back sooner than I thought I would!

3. One other thing to note: regardless of who you set up your consolidation through, if you say that you’re going to use auto-pay on the loans, your interest rate will drop by 0.25% because you’re seen as a more reliable borrower. I would highly recommend doing this — low interest rates are fun, and then you won’t have to worry about remembering to pay each month.

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2 thoughts on “How to consolidate your student loans

  1. This blog sounds like it will be extremely relevant to me, so consider me a subscriber!

    I believe I was one of those students who contacted you after hearing about your consolidation adventures. I think the greatest benefits you mentioned are simplification and avoiding the changes in servicing. I’m curious though – did you ever consider just having your payments automatically deducted from your bank account? It seems like that would solve at least the simplification portion of the equation.

    • I did consider keeping the loans with their servicers and just using automatic payments through my bank — and since I went from three servicers down to two, I’m not sure consolidating really did simplify the process much. I do appreciate that consolidating my loans gave me a locked down interest rate, though — I’ve already seen my variable interest rate climb on my private loans, and I’m glad that won’t happen with the consolidated loans.

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