With college tuition on the rise, many students take out loans to cover their expenses, leaving them with a pile of debt to pay off upon graduation. Parents, too, may find themselves grappling with multiple loans to help cover the cost of a child's education.

To ease the financial strain on your child or yourself, you may wish to consider student loan consolidation. Similar to refinancing a mortgage, this involves combining several student or parent loans into one bigger loan from a single lender. Is student loan consolidation right for your family? Here are a few facts to consider:

• You can consolidate most federal student loans, including Stafford, PLUS, SLS, FISL, Perkins, Health Professions Student Loans, NSL, HEAL, Guaranteed Student Loans, and Direct Loans.
• Some lenders offer loan consolidation for private student loans. Private loans cannot be consolidated into one loan with federal loans, however. If you have both types of loans, you can consolidate the federal loans in one loan and the private loans in another.
• You'll only have to deal with one interest rate. When you consolidate student loans, the interest rate will be the weighted average of the interest rates on each of the loans. In other words, when you consolidate loans with different interest rates, the new interest rate will fall somewhere in the middle. It may be lower than the highest of your rates, but it will not be lower than your lowest rate.
• There are no fees to consolidate student loans. Be wary of any lender that charges a fee to consolidate or asks for an up-front payment. There's also no prepayment penalty on federal education loans, including consolidation loans.
• You can consolidate with any lender, even if all of your loans are currently with one lender. This allows you to shop around for the best offers and discounts.
• You can only consolidate your loans once. Unless you add a new loan to your current consolidation loan or you combine two consolidation loans, you can't reconsolidate an existing consolidation loan. Generally, once you consolidate your loans, you're tied to that lender for the life of the loan.
• A consolidation loan may reduce your monthly payment amount by extending the term of the loan beyond the standard 10-year period. On the other hand, the total amount of interest you pay over the lifetime of the loan will increase.

Are you eligible to consolidate?

• Both student and parent borrowers can consolidate education loans; however, student and parent loans cannot be combined into one loan.
• Married students cannot consolidate their loans together.
• Students are not eligible to consolidate their loans while they are in school.
• You must currently be making loan payments or be within the loan's grace period.
• Typically, you must be carrying at least $5,000–$7,500 in loans.
• Your loans must be in good standing. (With a satisfactory repayment arrangement, some lenders will consider consolidating loans that are in default.)
• Parents can consolidate PLUS loans at any time.

Clearly, there are many factors to consider when deciding whether to consolidate student loans. The bottom line is this: if you or your child is having trouble making the monthly payments, or if you simply wish to streamline the repayment process, student loan consolidation may be a worthwhile strategy.

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Last Updated: 01/12/2012