Student Loan Consolidation
EducationGlossary term
Definition
The process of combining multiple federal student loans into a single Direct Consolidation Loan with one monthly payment and a fixed interest rate based on the weighted average of your existing loans. Consolidation can simplify repayment and make you eligible for certain repayment plans or forgiveness programs you might not otherwise qualify for. Unlike refinancing, federal consolidation does not lower your interest rate but does preserve access to federal loan benefits.
Related terms
- Student Loan RefinancingThe process of taking out a new private loan with a lower interest rate to pay off one or more existing student loans, potentially saving money over the life of the loan. Refinancing can combine multiple loans into a single payment with a new rate and term based on your current creditworthiness. Be aware that refinancing federal loans into a private loan means losing access to federal benefits like income-driven repayment and loan forgiveness.
- Federal Student LoanA loan funded by the federal government to help students pay for college or career school, offering fixed interest rates and flexible repayment options that are generally more favorable than private loans. Federal student loans include Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans, each with different eligibility requirements and terms. Borrowers may also qualify for income-driven repayment plans and loan forgiveness programs.
- Income-Driven Repayment (IDR)A set of federal student loan repayment plans that cap your monthly payment at a percentage of your discretionary income, typically between 10% and 20%. IDR plans extend the repayment period to 20 or 25 years, after which any remaining balance is forgiven. These plans are designed to make loan payments more manageable for borrowers whose debt is high relative to their income.
Get advice that uses your real numbers
Warren reads your accounts and explains what terms like this mean for your plan. Free to start, no credit card required.