Federal Student Loan Consolidation vs. Private Student Loan Consolidation

Calendar Icon Updated January 15, 2019
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Federal student loans are different from private student loans in many ways. Likewise, there are many differences when it comes to federal student loan consolidation and private student loan consolidation.

Differences Between Federal Student Loans and Private Student Loans

Federal student loans are loans that are made or guaranteed by the U.S. Department of Education. Private student loans, on the other hand, are not made or guaranteed by the government. Instead, private student loans come from private sources, such as banks, credit unions, schools, and other types of lenders.

Usually, federal student loans have better terms (such as a more favorable interest rate, better repayment options, or lower fees) than private student loans. Also, federal student loans do not require a credit check whereas private student loans do. Private student loans may also have tighter eligibility requirements than federal student loans.

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Federal Student Loan Consolidation 

Federal Direct Consolidation Loans are made by the U.S. Department of Education under the William D. Ford Federal Direct Loan Program. You can consolidate one or more federal student loans into a new, single loan as part of this program. Almost all federal student loans are eligible to be consolidated into a Direct Consolidation Loan.

It’s not possible to consolidate private student loans under the Direct Consolidation Loan program.

Here are a few of the benefits to a federal Direct Consolidation Loan.

  • Consolidating your federal student loans may lower the total amount you have to pay each month.
  • If you have multiple loans, it’s ordinarily easier to manage your payments after a consolidation because you’ll just need to make one payment each month rather than remembering to send numerous payments.
  • You might get access to repayment and forgiveness options that you didn’t have before.
  • You get a fixed interest rate that lasts for the entire time you’re repaying the loan.

Private Student Loan Consolidation

Private student loan consolidation is typically referred to as “refinancing” rather than consolidation. When you refinance multiple private student loans (or a single private student loan), you take out a brand new loan to pay off the old ones.

While you cannot include a private student loan in a federal Direct Consolidation Loan, you can sometimes refinance your federal student loans into one new private loan—but there are quite a few reasons to steer clear of this.

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Namely, if you privately refinance your federal student loans, you’ll lose the federal benefits (such as deferment, forbearance, and cancellation options, as well as access to affordable repayment plans) associated with those loans. (Some private lenders have options to help you if you’re having difficulty repaying your student loans, but they probably won’t be as generous as the options with federal loans.)

In fact, there are a number of private lenders that only refinance private student loans. This means they won’t even allow you to include any federal student loans in the refinance.

Eligibility Team

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