Should I consolidate my student loans?

If you signed a loan with a private lender instead of through a federal program, that loan isn’t eligible for inclusion in a Direct Consolidation Loan.

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Every year, Americans apply for more than $100 billion in federal education loans, but not all student loans are through the U.S. Department of Education -- Americans also apply for $10 billion in alternative student loans each year [source: FinAid]. Alterative student loans are private student loans, and Americans collectively owe about $165 billion in private student loan debt [source: O'Shaughnessy]. While private student loans can't be consolidated with federally guaranteed loans in a single Direct Consolidation Loan, there are options for consolidating your private loans -- let's talk about the pros and cons.

Interest rates on federally guaranteed education loans and consolidation loans are determined by the government, but when it comes to private loans. you might be able to score a rate lower than the Direct Consolidation Loan can offer its customers. Lenders determine whether or not you're eligible for a private consolidation loan (and at what interest rate) based on what they see in your credit report -- the higher your credit score, the better a candidate you appear to be to lenders.

Private student loan holders with good credit -- or credit that has improved since the loans originated -- may find consolidating private education loans comes with a better, lower interest rate. Options include private consolidation loans, of which most will have a variable interest rate as well as variable minimum and maximum loan limits, fees and rules. Some home owners consolidate their education debts with a fixed-interest rate home equity loan. If you're a home owner comfortable using your house as collateral against your student loan debt, then this might be for you.

If you have both private and federal education loans and are considering consolidating them into a single private loan, borrower beware: For the most part, federal loan programs offer rates and benefits that private lenders just can't beat. It's best to consolidate federal loans through the U.S. Department of Education and private loans through private consolidation lenders (of which, as of 2013, there are a limited number).

Author's note: Should I consolidate my student loans?

My, how times have changed since I borrowed money for college. Not the part where Americans owe billions of dollars in education loans -- that doesn't seem to have changed much -- but the array of options available for applying, repaying and consolidating federally guaranteed student loans today seems not only more flexible, but also helpful and useful.

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