Want to Consolidate Your Student Loans? Here's How

05/31/2015 02:11 pm ET | Updated May 31, 2016

The average American college student graduates with several student loans with an average total balance of $29,000 in student loan debt. Each academic year, students need to reapply for new loans to cover the upcoming tuition and school related expenses. This means multiple loans from potentially multiple student loan servicers at the time of graduation. A great option for students who find themselves in this situation is to consolidate their student loans into one loan balance.

The Difference Between Consolidating and Refinancing

Sometimes the words consolidation and refinance are used interchangeably, and while in some cases borrowers are doing both consolidating and refinancing, sometimes they are not. A loan consolidation is the act of combining several loans into one loan with one payment. A refinancing includes a reassessment of ones financial standing to determine a new interest rate. A borrower may combine several student loans during a refinance but they will also receive a new and often times lower rate.

Federal Loan Consolidation

Borrowers with multiple federal student loans may benefit from a Federal Direct Consolidation Loan. This loan combines all qualifying federal student loans into one balance with an interest rate that is calculated as a weighted average of their previous interest rates. A Federal Direct Consolidation Loan does not involve a change in interest rate. In this circumstance the borrower does not see any savings in interest, they just have the benefit of having one student loan.

How: Federal loans can be consolidated through one of the loan servicers set by the federal government. Be sure to check with each servicer to see which benefits will still apply on your new consolidated loan. Check out for more information.

Private Loan Consolidation

Currently there are private lenders that will consolidate both private and federal student loans all into one new private student loan. Borrowers not only consolidate all their loans into one loan balance, but also get a new interest rate on their loan, they are refinancing. Borrowers that opt to consolidate both federal and private student loans need to understand that they are giving up any benefits they may have on their federal loans. However, the savings in interest may make up for those lost benefits.

How: There are more than twelve private lenders that will consolidate and refinance your student loans. Lenders have varying underwriting models, so it is important to explore multiple lenders to get the best rate possible. Check out Credible to explore multiple lenders.

What Type of Consolidation is Best For You?

 If you are satisfied with your current interest rates, have only federal loans, and just want one student loan to pay, a federal consolidation may be the choice for you. If you want to potentially lower your interest rate, have federal or federal and private loans, a private consolidation may work well for you. A federal consolidation will preserve your federal benefits such as income-driven repayment plans if these options are important to you. On the other hand, if your goal is to pay off your loans as quickly as possible, a private consolidation can help save you money by potentially reducing your total repayment.

Understanding how to consolidate your student loans and the options you have can play a pivotal role in improving your repayment strategy and hopefully reducing your overall total repayment.

Learn more about your private consolidation options at Credible.