Should I consolidate my student loans?

Consolidation can look like an easy solution when you’re juggling several student loan payments each month, but it may not be the right option for everyone.


Want some help with paying off debt, but not sure what to do? You might have heard that loan consolidation can give you a lower interest rate, better loan terms, or smaller monthly payments.

When you consolidate loans, you borrow enough money through a new loan to cover all of your existing balances. The lender will pay off your existing loans. Essentially, you’re trading several loans for one new loan. You can then focus on the single new loan, which comes with its own interest rate and terms.

There are a few ways to consolidate your student loans: You can combine all your existing private student loans into one new private consolidation loan, or your federal loans into a new consolidated federal loan, typically known as a Direct Consolidation Loan. Sometimes private lenders may be able to refinance your federal loans as well.

Should you consolidate?

There’s no right answer about student loan consolidation, and the best course of action will depend on your specific financial situation. Keep in mind when you consolidate, with some lenders you may have a loan origination fee (though with a Wells Fargo consolidation, you won’t pay application or origination fees).

Here are some potential reasons your may consider consolidating:

1. You want to lower your monthly interest rate

Student loan consolidation may provide you with a better interest rate than you currently pay on your private loans. This is especially true if your credit is significantly better than when you initially took out those loans. Use a student loan calculator to see how to potentially pay less interest on your student loan.

2. You want to release a cosigner

When you applied for you student loans, your parents may have cosigned for the loan. A cosigner is someone other than the borrower who signs onto financial responsibility for the loan, typically to help the primary borrower acquire a lower interest rate. Applying for a new, consolidated loan is one way to remove cosigners from your loan — which may make Mom and Dad happy.

3. You want to change your repayment term

If you want to pay off your debt faster, you can consolidate and shorten your loan’s repayment term and make bigger payments. Or, you can consolidate with a longer payment term, and make smaller payments each month. Just know extending a loan term will also mean you’re paying more in interest over the life of the loan.

4. You want to simplify your bills

Your post-college bank account may get a bit confusing, with new income and costs (like paychecks, rent, and insurance payments) entering and exiting your bank. If you want to simplify your bill payments, one way to do so is to consolidate your student loans. Instead of having multiple loans to track and make payments on, you’ll only need to focus on one.

Make sure to look at all scenarios — and run the numbers for each — to see what makes the most sense for you and your finances.