Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 8, 2011

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The act of consolidating one’s student loans is essentially just “combining” all existing loans into one. Student loan consolidations allow borrowers to reduce their monthly payments, balance out their interest rates, and maximize their capability to meet their outstanding financial obligations. Most consolidations are for federal loans, but some private lenders also offer a similar service as well.

[loansform]The interest rate charged on a consolidation loan is the weighted average of the rates tied to each existing loan being consolidated. For instance, imagine a borrower had three loans: one with a 5.3 percent, one with a 6 percent, and one with a 9.2 percent interest rate. When consolidating these lines of credit together, the result would be a single student loan carrying an interest rate of around 6.8 percent.

Since the consolidated interest rate is a weighted average of all the existing bills being combined, it’s impossible to reduce the rate below the lowest existing interest rate. It’s very important to ignore anybody who promises such a service. That’s impossible with consolidations, something that lenders would never agree to, and a common tactic amongst scammers trying to prey upon unsuspecting student and parent borrowers.

Because this financing tool reduces monthly payments, student loan consolidations often extend the existing terms on a borrower’s line of credit. As a result, those who consolidate their financing should expect to see a 10 to 30 year extension on their repayment plan.

Student loan consolidations are permitted on any federal student loans and both student and parent borrowers are eligible to receive one. In some cases, even single student loans or those already consolidated may be eligible for another consolidation.