Consolidation

The borrower applies through the Federal Student Aid website, selects which loans to include, and chooses a repayment plan. The Department pays off the underlying loans and issues the new consolidation loan. Any borrower benefits tied to the original loans (such as remaining grace periods or certain interest subsidies) may be lost. For defaulted loans, the borrower must usually agree to an income-driven plan or make several on-time payments before consolidation can restore aid eligibility.

Example: a borrower with two Subsidized and three Unsubsidized loans consolidates them into one Direct Consolidation Loan at a fixed weighted-average rate. The borrower then enrolls in an income-driven plan and begins counting qualifying payments toward Public Service Loan Forgiveness on the entire balance.

Refinancing with a private lender replaces federal loans with a private loan and permanently loses federal protections and forgiveness options. Rehabilitation resolves default without creating a new loan. A standard repayment plan change does not combine loans.

Consolidating only to obtain a lower rate, which federal consolidation does not provide. Losing grandfathered benefits on older loans without understanding the consequences. Assuming private loans can be included in a federal Direct Consolidation Loan.