Private Student Loan Consolidation: What You Should Know

When you get a federal student loan, you are getting a standardized package that can be consolidated through one of two federal student loan consolidation programs. Unfortunately it gets more complicated when consolidating private student loans because they are non-standard debt packages: agreed upon between you and the financial institutional who funds your student loan. That means private loan consolidation is not applicable for federal student relief in most situations.

The key to private student loan consolidation is getting your payments into one single monthly outflow. Even though the government itself will not consolidate your student loan, many private financial institutions will step into the void. This is due to an implicit guarantee from the government that it will insure these private lenders for any losses you might cause during a student loan default.

The good news is that because, in most cases, your consolidated private student loan will be based upon your current credit score, not the score that was the basis for the original student loans. That means that if your score has improved substantially, your combined payments may be lower than paying each loan individually.

How the Government Can Help Consolidate Your Student Loans

The United States has two programs that allow students to consolidate their Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single consolidated debt obligation. This will lower your student loan payments, but may increase the term over which you pay the loan back.

Often called "direct loans," the tuition funding provided the William D. Ford Federal Direct Loan Program (FDLP) is a US Department of Education program that directs student loan funding to those seeking education after high school. The department itself acts as the student lender, providing funds for Stafford and PLUS loans in the same amount as the second program: The Federal Family Education Loan Program (FFELP).