One of the biggest student loan myths out there is that borrowers cant consolidate federal and private student loans into one loan. Its understandable how this misconception came to exist, since this wasnt an option for many years. But now that the choice is available, its important for borrowers to understand whether its right for them especially when theres the potential for significant cost savings on the line.
While its not possible to use the federal Direct loan consolidation program to combine your federal and private student loans, it is possible to consolidate federal and private student loans with some private lenders. Through this process, you actually apply for a new loan (which is used to pay off your original loans) and youre given a new interest rate, which means that in addition to consolidating you are also refinancing student loans.
Why would you want to do this? In addition to the advantages of consolidation (like having one, simplified monthly payment), you may also qualify for a lower interest rate. Refinancing student loans at a lower rate can mean big benefits, like lowering monthly payments, reducing the time it takes to pay off your debt, and cutting down on the total interest you pay over time.
Now that you know you can combine federal and private loans through the student loan refinancing process, the next question is whether you should do it. Here are two important questions to ask yourself before making a decision:
1. Do your federal student loans have high interest rates?
Some people assume that federal loans always offer the best rate available, but this simply isnt true.
Depending on loan type and disbursement date, your federal student loan rate could range from about 3% to 8%. With prevailing interest rates at historic lows, some private lenders offer rates that are significantly better than a high-rate federal loan. This is why many borrowers look to refinance high interest rate unsubsidized Direct loans and Graduate PLUS loans.
But how important is interest rate, really? Lets compare a 10-year term, $80,000 loan at 7.21% (the fixed rate on federal Grad PLUS loans issued between July 2014 and July 2015) and 5.88% (the average interest rate for SoFi refinance borrowers as of 12/31/14).*
| Interest Rate | Monthly Payment | Total Interest |
| 7.21% | $937.55 | $32,505.90 |
| 5.88% | $883.35 | $26,002.13 |
In this example, refinancing would mean both lower monthly payments and a total savings of more than $6,500.
2. Do you qualify for federal student loan benefits?
Some federal loans offer benefits and protections that do not transfer to private lenders. This is often the reason that people cite when they say you shouldnt combine federal and private loans. But before you dismiss the idea of refinancing, you should first take a look to see if any of these benefits apply to you.
For example, under the Public Service Loan Forgiveness Program (PSLFP), your Direct Loan balance may be eligible for forgiveness after 120 payments if youve worked in the public sector that entire time. Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in schools that serve low-income families full-time for five consecutive years. These are clearly great programs for people who choose careers in public service or education, but if thats not you, they wont do you any good.
There are also a number of federal loan repayment plans that can ease the burden of repayment for borrowers facing tough economic times. For example, the governments Pay As You Earn (PAYE) and Income-Based Repayment (IBR) programs allow borrowers to make reduced monthly payments based on financial hardship. But if your income is over a certain threshold, you wont benefit from these programs. And if you do qualify, but youre at the high end of the spectrum, your slightly lowered payments may come at a disproportionate price in the form of accumulating interest.
Its important to note that some private lenders offer their own benefits and protections. At SoFi, for example, if you lose your job, well not only pause your payments well help you find a new one.
Combining federal and private student loans through the refinancing process might not make sense for every borrower, but it can provide great benefits for some. Now that you know its an option and you understand how it works, you can better assess whether its right for you.
*Click here to see student loan refinance examples that depict APR, monthly payment and total finance charges.
Editors Note: This is an updated version of a post we originally published in December 2013. We welcome new comments and questions below.
Most federal student loans, submit your Federal Direct Consolidation Loan that allows you to combine one or more federal student loans into
Student Loan Consolidation: When to Combine Federal and ...
Explore how private and federal student loan consolidation consolidate federal and private student loans Loan Consolidation: When to Combine Federal
Direct Consolidation Loan - Borrower Services
has implemented a new Direct Consolidation Loan application You may be able to combine your existing Federal education loans into one new consolidated loan
FinAid | Loans | Student Loan Consolidation
Student Loan Consolidation. Consolidation Loans combine several student or parent loans into get a federal education loan or consolidate your federal
Consolidate Federal Student Loans | Student Loan Debt ...
A Student Loan Consolidation allows borrowers to combine all of their federal student loans into one new loan with one lender. Call (800)551-7187 Now !
What to Know Before Consolidating Student Loans | Fox Business
Consolidating Federal Student Loans. (our student loan makes sure to tell borrowers to stay away from consolidation loans that combine federal and
Is there any possible way to combine federal and private ...
Is there any possible way to combine federal and private student loans? consolidate your Federal Student Loans Student Loan Consolidation
4 Reasons to Consolidate Your Student Loans - US News
4 Reasons to Consolidate Your Student Loans You want to combine your federal loans and make just one monthly payment. 2. Student Loan Ranger,
Federal Consolidation FAQs | StudentLoanConsolidator.com
How do I combine multiple federal loans into one loan? How long does it take to consolidate federal student loan consolidation consolidate federal student loans?
Student Loans: What to Consider Before Consolidating
College students relying on student loans to pay for Consolidating those loans can "Don't ever consolidate private loans with federal