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Loan Consolidation
Definition
Combining multiple federal student loans into one single loan with a fixed interest rate.
Explanation
Direct Consolidation Loans merge multiple federal loans into one with a single monthly payment. The interest rate is the weighted average of existing loans, rounded up to the nearest 1/8th of 1%. Can extend repayment up to 30 years, lowering payments but increasing total interest.
Consolidation may provide access to additional repayment plans. However, consolidating loans close to forgiveness resets the payment clock — lost progress on IDR or PSLF.
Example
4 federal loans: $10k at 4.5%, $15k at 5%, $20k at 6%, $8k at 5.5% → consolidated into one $53k loan at ~5.3%.