Should I Consolidate Student Loan Debt?
UpdatedApr 10, 2025
- Consolidating student loans may reduce your interest rate, lower your monthly payment or get you more time to pay off your loans.
- Student loan consolidation could cause you to lose certain protections and might cost you more in interest.
- You can only consolidate student loans once, so choose your time carefully.
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Was your college education worth the cost? In the Freedom Debt Relief 2019 survey about student loans, 39 percent of people said that it wasn’t. While a college education may open the path to better job prospects and higher pay over your lifetime, it’s frustrating to be shackled with student loan debt that could take up to 25 years to pay off.
If you’re in over your head with student loan debt, you may be looking for any solution that lessens your financial burden. Some may decide to consolidate student loan debt, but it isn’t always the best choice.
How to consolidate student loan debt
Student loan consolidation involves grouping multiple student loans into a single loan. This process could help you simplify your payment schedule and save you money on interest, based on the type of loan you take out. Both federal student loans and private student loans could qualify for student loan consolidation, but your options will depend on who you borrowed the money from.
Consolidating federal loans
If you only have federal loans, you could consolidate them all into a Direct Consolidation Loan, which could allow you to keep many of your benefits, such as deferment, or the option to enroll in Income-Driven Repayment Plans. But since your new interest rate will be a weighted average of your current rates, these loans may not save you much money on interest in the long run.
Consolidating private loans
On the other hand, if you only have private student loans or a mixture of private and federal student loans, you may be able to consolidate student loan debt through a private lender. You’ll lose the benefits of your federal student loans, but you could end up with a lower interest rate.
In addition to student loan consolidation, many private lenders also offer student loan refinancing. Refinancing involves taking on a new loan to pay off your current student loans.
Pros of student loan consolidation
Depending on your situation and goals, consolidating your student loans might help you reach your financial goals sooner. Here are a few potential benefits of student loan consolidation:
Private loans could lower your rates. If you consolidate your student loan debt with a private lender, you could get a lower interest rate than the one you’re currently paying. A Direct Consolidation Loan will not lower your rates.
More time to pay back student loans. When you get a Direct Consolidation Loan, you’ll be able to choose between repayment plans ranging from 10 to 25 years, which may give you more time. If you opt for private student loan consolidation, you will also have a choice in how long you get to repay the loan.
It could lower your monthly payments. If you choose a longer repayment period, you’ll likely end up with lower minimum monthly payments than what you currently pay. This means you’ll pay more in interest over time, but lower payments could help if you’re currently struggling financially.
Minimal impact on your credit score. Because a Direct Consolidation Loan doesn’t require a credit check, it won’t negatively impact your credit score. Most private lenders require a soft credit check, which impacts your score far less than a hard credit pull.
Cons of student loan consolidation
While it’s a great option for some, not everyone should consolidate student loan debt. Here are the potential downsides of student loan consolidation:
It could cost you more each month. If your new repayment plan is shorter, you’ll likely end up with higher monthly payments than you’re currently paying on your student loans.
You may lose certain privileges. If you’re currently working toward Public Service Loan Forgiveness (PSLF) or another type of forgiveness program, consolidation will reset the clock, so any progress you’ve made toward getting your loans forgiven will be erased. If you consolidate federal loans with a private lender, you may lose federal privileges such as deferment and forbearance.
It could cost you more interest over time. You might have lower monthly minimum payments; but since you typically extend the repayment period when you consolidate student loan debt, it’ll cost more in interest over time.
It could increase your interest rate. When you consolidate with a Direct Consolidation Loan, your new interest rate will be calculated by averaging the rate on your current loans and adding one-eighth of 1 percent. This means your new weighted average could be higher than your current rate.
You can only consolidate student loan debt once. If you want to take out a Direct Consolidation Loan, you can only do it once. If market interest rates fall in the future, you’ll be stuck with the rate you have and won’t be able to refinance again to take advantage of them.
Should You Use Home Equity to Pay Off Student Loan Debt? Find out here.
Is it a good idea to consolidate your student loan debt?
If you’re having trouble keeping up with minimum monthly payments, consolidating might help. By extending the total life of your loan, you will lower your monthly payments and relieve some immediate pressure. However, extending the total life of your loan also means that you’ll end up costing you more in interest.
If you’re considering consolidating federal loans into a private loan, be aware that you could lose many of the benefits that could help you if you’re struggling with your debt, such as deferment and forbearance. Also, consolidated student loans will not qualify for PSLF or other loan-forgiveness programs. So if you’ve already been progressing toward having your loans forgiven, consolidation may not be a good idea.
Consider this rule of thumb: if it’s going to net you lower interest rates or lower monthly payments, it might be worth considering. However, if consolidation leaves you with higher interest rates AND higher payments, it’s not going to help you get out of debt.
Make the right choices for a brighter financial future
Planning for your future and learning how to deal with debt—such as deciding whether to consolidate student loan debt—doesn’t need to be difficult. We have developed a clear and helpful guide to assist you toward a brighter financial future. Get started by downloading our free guide today.
Learn More
Money Tips for Recent College Grads: Recession Edition (Freedom Debt Relief)
How to Pay Less for College—What You Need to Know (Freedom Debt Relief)
Talk to a Creditor About Loan Forbearance: A Step by Step Guide (Freedom Debt Relief)
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2024. The data uncovers various trends and statistics about people seeking debt help.
Credit utilization and debt relief
How are people using their credit before seeking help? Credit utilization measures how much of a credit line is being used. For example, if you have a credit line of $10,000 and your balance is $3,000, that is a credit utilization of 30%. High credit utilization often signals financial stress. We have looked at people who are seeking debt relief and their credit utilization. (Low credit utilization is 30% or less, medium is between 31% and 50%, high is between 51% and 75%, very high is between 76% to 100%, and over-utilized over 100%). In November 2024, people seeking debt relief had an average of 79% credit utilization.
Here are some interesting numbers:
| Credit utilization bucket | Percent of debt relief seekers |
|---|---|
| Over utilized | 30% |
| Very high | 32% |
| High | 19% |
| Medium | 10% |
| Low | 9% |
The statistics refer to people who had a credit card balance greater than $0.
You don't have to have high credit utilization to look for a debt relief solution. There are a number of solutions for people, whether they have maxed out their credit cards or still have a significant part available.
Credit card debt - average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average credit card debt for those with a balance was $6,021. The percentage of families with credit card debt was 45%. (Note: It used 2022 data).
Unsurprisingly, the level of credit card debt among those seeking debt relief was much higher. According to November 2024 data, 88% of the debt relief seekers had a credit card balance. The average credit card balance was $15,618.
Here's a quick look at the top five states based on average credit card balance.
| State | Average credit card balance | Average # of open credit card tradelines | Average credit limit | Average Credit Utilization |
|---|---|---|---|---|
| District of Columbia | $16,967 | 7 | $24,102 | 121% |
| Arkansas | $12,989 | 9 | $28,791 | 83% |
| Tennessee | $13,822 | 9 | $27,261 | 82% |
| New Mexico | $11,860 | 8 | $25,731 | 82% |
| Kentucky | $12,834 | 8 | $26,156 | 81% |
The statistics are based on all debt relief seekers with a credit card balance over $0.
Are you starting to navigate your finances? Or planning for your retirement? These insights can help you make informed choices. They can help you work toward financial stability and security.
Tackle Financial Challenges
Don’t let debt overwhelm you. Learn more about debt relief options. They can help you tackle your financial challenges. This is true whether you have high credit card balances or many tradelines. Start your path to recovery with the first step.
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