How Does FAFSA Loan Consolidation Work?

If you have federal loans, consolidating those loans can help you reduce student debt, better manage payments, and meet other financial goals. Too much student debt can affect your ability to save for retirement or qualify for other loans like a mortgage. This guide explains the best options for FAFSA loan consolidation as well as the pros and cons.

How Does FAFSA Loan Consolidation Work?

FAFSA student loan consolidation combines multiple federal loans into a single federal loan by the Department of Education. You may need to consolidate to qualify for certain federal loan repayment programs, but federal consolidation will not lower your interest rate. You can lower your payments by spreading them out.

Federal Student Loan Consolidation

Federal loan consolidation has no credit requirements and offers the benefit of a single loan bill and potentially lower payments. But that only applies to federal loans and doesn’t lower your interest rate. Consider federal consolidation if you:

  • Have to consolidate to be eligible for public service loan forgiveness or income-driven repayment. This is the case if you have PLUS parent, Perkins, or Federal Family Education loans.
  • You want a single federal loan payment, but you don’t need it to be significantly lower.
  • You’re defaulting on student loans and want to get back on track.

When you consolidate federal loans, the government repays them and replaces them with a direct consolidation loan. You are generally eligible once you graduate, drop out of school, or fall below mid-term enrollment. FAFSA loan consolidation through the Department of Education is free. Avoid companies that charge a fee to consolidate for you.

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When you consolidate federal loans, your new fixed rate is the weighted average of your previous interest rates, rounded up to the nearest ⅛ of 1%. For example, if the average reaches 6.15%, your new interest rate is 6.25%.

You also get a new term of 10 to 30 years. Your repayment period typically begins within 60 days of the first payout of your consolidation loan and is based, among other things, on the overall balance of your federal loan.

FAQ about FAFSA Loan Consolidation

Should I Consolidate My FAFSA Student Loans?

You need to consolidate your FAFSA loans if you want to make a monthly payment or if you need to consolidate to qualify for programs like government loan forgiveness. If you are looking to save money by lowering your interest rate, consider a personal loan consolidation, also known as a refinance.

Can you Consolidate FAFSA Student Loans?

You can consolidate FAFSA student loans with the Department of Education or a private lender, also known as a refinance. When you refinance federal loans with a private lender, you lose access to government programs, such as income-contingent repayment and government loan forgiveness.

How Do I Consolidate FAFSA Student Loans?

You can consolidate FAFSA student loans for free with the Department of Education at If you want to consolidate or refinance your loans with a private lender, apply directly on the lender’s website.

How to Consolidate FAFSA Loans

Log on to and click on “Complete Consolidation Loan Application and Promissory Note”. You must complete the application in one sitting, so please gather the documents listed under “What do I need?” section before starting and allow approximately 30 minutes to complete.

  • Specify which FAFSA loans you want to consolidate and which you don’t.
  • Choose a repayment plan. You can get a payment schedule based on your loan balance or choose one that matches income-based payments. If you choose an income-based plan, the next step is to complete an application form for an income-based payment plan.
  • Please read the terms before submitting the online form. Continue to make student loan payments as normal until your department confirms the consolidation is complete.
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When your loans are in default, consolidation is one of the few ways to get your loans back on track. To consolidate defaulted loans, you must make three consecutive full monthly payments on the delinquent loan and agree to enroll in a payment plan with proof of income.

How to Use Income-Based Repayment Plans

If you are considering government or private student loan consolidation for a significantly lower loan bill, consider looking more into income-contingent repayment. The government is proposing plans to reduce payments to 10% or 15% of “voluntary” income and waive the rest after 20 or 25 years. You can enroll for free at If you have a large loan balance and low income, paying according to income is probably the best option for the lowest monthly bill.

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