At a Glance

Private student loan debt makes up only about 8.4% of total outstanding student loan debt, but it still exceeds $140 billion, with the average balance around $40,904 per borrower.

Private student loans typically have a higher interest rate than federal loans, and there aren’t as many relief options available if borrowers have a difficult time repaying them. However, the good news is, many banks and credit unions offer the ability to consolidate private student loans.

Private student loan consolidation

If you have multiple loans, each likely with different payments, due dates, and interest rates, you may want to consider consolidation. Consolidating your loans means you combine multiple loans into one, so you only have one payment each month. Ideally, the consolidation loan would have a better interest rate, which can help you pay off your loans quicker and potentially save you money in the long-run.

The interest rate for your consolidated loan is based on your credit score, so the better your score, the lower your new interest rate will likely be. You may also qualify for a lower rate if you’ve graduated, are working a job, and continue to take steps to improve your score.

It can also help if you own a home and have built some equity. This may also help you qualify for a home equity loan, which has a fixed interest rate, though the downside is if you’re unable to make the payments you could potentially lose your home.

Three of the factors lenders will look into when considering approving your application include:

  1. Your income
  2. Your debt-to-income (DTI) ratio
  3. Your credit score

They want to ensure you have enough income to make the monthly payments, that you’re able to take on debt, and you are credible to pay back the loan. Experts suggest having a DTI less than 36%, and a credit score that’s at least 660 or higher.

When comparing consolidation loans for private student loans, a few factors to consider include:

  • Loan maximums and minimums. You’ll want to ensure the loans you are consolidating meet the minimum consolidation loan requirement, but also that the consolidation loan covers all (or most) of your existing loans. Choose a consolidation loan that meets your needs.
  • Interest rates. Consolidation loans offer either variable rates, which means they can change over time, or fixed rates, which means they will not change. You may want to choose a loan with a fixed rate for more stability. You should also make sure that the consolidation loan interest rate is not higher than your existing loans; otherwise, you’d be paying more in interest over time.
  • Cosigners. If you’re a student, you may need a cosigner for the loan agreement. This may mean a parent or other responsible adult, but be sure you have someone willing and able to cosign for you if necessary.
  • Federal loans vs. private loans. If you have federal student loans, you may qualify for a direct consolidation loan offered through the U.S. Department of Education. However, private loans are not eligible for direct consolidation loans. You’ll have to find a bank or credit union that will consolidate your private loan.
  • Fees and penalties. Be aware of any application fees, prepayment penalties, and other fees the loan servicer may charge.
  • Repayment terms. Some consolidation loans may have different terms than your private loans. For example, you may have 10-30 years to repay the loan instead of 10. While this can give you more time to make payments, it could also mean you’ll end up paying more over time.

How to consolidate student loans

The first step is to research private loan consolidation companies and options, using the factors above to compare. Most lenders offer calculators to estimate your rate and terms, and even help you prequalify.

When shopping, check out:

  • Credit unions: They typically over lower interest rates and fees than banks do. They may also be more likely to work with borrowers who have lower credit scores.
  • Banks: A great option for borrowers with excellent credit scores.
  • Online lenders: These typically offer lower interest rates and have the benefit of everything being digital, but don’t offer in-person support if you have questions.

Once you’ve found a lender with the rates, terms, and loan amount you need, you’re ready to apply. Many lenders allow you to fill out and submit the application online, though you may also be able to call or visit a branch in person if you prefer.


Can you consolidate private student loans?

Yes, you can consolidate private student loans through a private consolidation loan or personal loan. These are offered by many banks or credit unions, and will consolidate your loans into one payment each month. You may even qualify for a lower interest rate, which can save you money over the life of the loan.

How do I settle my private student loans?

You must be in or near default to start loan settlement negotiations. For private loans, this typically happens after 90 days of missed payments. Some lenders may accept 50% or less of your total owed, while others may only accept 75-80%. You can either reach out to the company yourself and discuss settlement options, hire an attorney who specializes in debt settlements, or work with a debt settlement company.

Can my student loans be forgiven if I consolidate?

If you consolidate loans other than direct loans, you may have access to loan forgiveness programs or income-driven repayment plans. However, you may lose some of these benefits associated with your current loans depending on the type of loan. Before consolidating, make sure you’ll still be eligible for forgiveness programs.