If the credit scores have improved significantly, this may lead to a lower interest rate, potentially saving the borrower money.
If a borrower’s private student loans were obtained with a cosigner, and the private consolidation loan does not involve a cosigner, consolidating the private student loans releases the cosigner from his/her obligation. However, since the interest rates on a private student loan usually depend on the higher of the borrower’s and cosigner’s credit scores, this may lead to an increase in the interest rate on the private consolidation loan, unless the borrower’s current credit score is better than the cosigner’s previous credit score.
The following types of loans may be consolidated, including loans made in the FFEL program and the Direct Loan program.
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Federal consolidation loans allow borrowers to combine several federal student loans into one loan to streamline loan repayment.
The monthly payment amount may decrease because repayment can be spread over a longer time period.
For example, under the Public Service Loan Forgiveness Program (PSLFP), your Direct Loan balance may be eligible for forgiveness after 120 payments if you’ve worked in the public sector that entire time.
Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in schools that serve low-income families full-time for five consecutive years.
This is often the reason that people cite when they say you shouldn’t combine federal and private loans.