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Federal vs. Private Loans: Can I Consolidate Both?

Federal Student Loans

Federal Student Loans are loans that are subsidized by the government. These subsidized student loans usually have a much lower interest rate than private student loans. Therefore, students should always borrow as much as possible (if needed) using federal student loans. Federal Loans include Federal Stafford Loans, Federal Perkins Loans, and Federal Plus Loans. In some cases, the government pays the interest on the loans when you are in school and 6 months after you graduate (i.e. subsidized loans which are need based) and then you are responsible when repayment begins. In other cases, you will be responsible (unsubsidized) for the interest that accrued when repayment begins or your grace period is over. In either case, the interest rate is much lower in general versus a private loan. Start here to consolidate your federal student loans.

Private Student Loans

Private student loans are loans that are not subsidized by the government which means you are usually borrowing at a much higher interest rate. Furthermore, unlike federal loans, they are usually not fixed but variable, so your interest rate can fluctuate monthly. Therefore, a student in need of financial assistance should always borrow as much as possible from Federal Student loans first.


Both federal and private loans can be consolidated. Remember though that when you consolidate, you are lengthening your repayment term. This means that ultimately your monthly payments might be lower but the interest paid in the long run is greater. Federal student loan consolidation typically is beneficial because you can usually reduce your interest rate, lock in a fixed rate, lower your monthly payment (better cash flow), and improve your credit.

Private student loans can sometimes be consolidated to a longer repayment period at a fixed rate. Again, private student loan consolidation can improve your credit score and cash flow. However, private loan consolidation is usually more disadvantageous compared to the consolidation of federal loans. Why? Typically, private student loans can not be consolidated at a fixed rate and consolidation usually wipes out grace periods and interest rate reductions for on-time payments. Never consolidate your federal and private student loans to one loan. Always, keep federal separate from private.