Student Loans

Can You Consolidate Debt Into A Student Loan

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 13 minute read

You might think you need a CPA to keep track of your student loan debt, credit card debt, and other forms of unsecured debt. As a result, it’s easy to see why debt consolidation would appeal.

One way to pay off numerous bills at once is to get a debt consolidation loan, which is essentially a large, unsecured personal loan. Credit card debt consolidation loans are popular because they enable borrowers to refinance their high-interest debt at a lower fixed interest rate, which makes it more feasible to eliminate their credit card debt altogether.

In addition, the loan duration and repayment date are also set in stone, and you’ll only be responsible for one monthly installment. The length of the loan can be tailored to fit the borrower’s financial needs and preferences, making it easier to manage the monthly payments.

Budgeting, keeping track of payments, having a reduced monthly payment, and eventually getting out of debt altogether can all be simplified with consolidation. However, before you apply for a debt consolidation loan to pay off your student loans and other debts, there are a few things to think about.

Can Student Loans and Other Debts Be Consolidated?

Consolidating debt can be complicated, especially if you have college loans. A federal direct consolidation loan can be used to consolidate multiple federal student loans into one manageable payment.

You can consolidate several federal student loans into one convenient loan with a low, fixed interest rate and a single monthly payment. Your interest rate will not be reduced by taking out a consolidation loan directly. Rather, it uses a weighted average of your previous student loan interest rates to keep your payments relatively unchanged from before.

The primary advantage of a federal direct consolidation loan is that it allows you to keep all of your existing federal student loan repayment choices, such as income-driven repayment, the Public Service Loan Forgiveness Program, extended deferment and forbearance periods, and even debt cancellation and discharge in certain situations.

A federal direct consolidation loan cannot be used to pay off private student loans or unsecured debts such as credit card balances. Federal loans are the only kind that can be used, therefore only direct loans, PLUS loans, Stafford loans, and Perkins loans will do.

Both federal and private student loans can be consolidated into one manageable payment with the help of a private refinance loan. Private student refinancing loans are issued by financial institutions such as banks and credit unions as opposed to government agencies like the Department of Education with federal direct consolidation loans. 

These loans are taken out primarily for the goal of lowering the interest rate, while they can also be used to combine many student loans into one manageable payment.

If you refinance your federal student loans, you will no longer qualify for government repayment alternatives, borrower protections, or forgiveness programs, which may make you reconsider. It is also not possible to use the proceeds from a refinance loan on other debts, such as credit cards, just as it is not possible to do so with a federal direct consolidation loan.

Personal loans from a private lender, however, can be used for the consolidation of any debt. This means that borrowers can combine federal and private bank loans with other unsecured debts, including school loans.

It’s not always the case. To consolidate all debts, you need a personal loan, but not all personal loans offer this feature. The payoff is a financial institution that specializes in providing personal loans for the express purpose of paying off consumer credit card balances. 

However, if you want to consolidate your student loans and credit card debt into one personal loan, you should be able to do so with the help of most private loan lenders by simply writing a check to the appropriate service or company.

Should I Consolidate My Debt All at Once?

It’s not always a good idea to take advantage of your abilities. It’s important to weigh the pros and downsides of getting a personal loan to pay off school loans and other debts.


Consolidating debt can help simplify your finances and save you money in the long run.

1. One Loan with a Single Monthly Payment

A debt consolidation loan might help you get your debt under control and make your monthly payments more manageable. One loan means one payment, which means less stress. You won’t have to worry about missing any payments or being late to satisfy creditors anymore. That makes it less likely that you’ll miss a payment and incur penalties as a result.

2. It May Result in Lower Interest Rates Overall for You.

If you consolidate your debt, you may be able to refinance it at a more manageable interest rate. Ultimately, this will help you save a lot of cash. Consider the following scenario: you have accumulated a credit card debt of $10,000 at the current average interest rate of 16.30% as of 2021 (Federal Reserve data). Average personal loan interest rates in 2021 are projected to be 9.58 percent, according to the same source.

In ten years, you’ll have paid a grand total of $20,327 toward your credit card debt, or more than twice the original balance due to interest alone. However, if you refinance your debt at 9.58% for the same 10-year period, you will pay off only $15,580, or $5,580 in interest.

You can save a significant sum of money over the course of your loan’s term by negotiating a lower interest rate. Consolidating debt to a lower interest rate, however, requires good credit in the form of a high credit score, a consistent income, and a credit history devoid of severe delinquencies. Find out where you stand with your credit by looking up your score.

In addition, allows you to obtain a free credit report once each year from each of the three major credit reporting agencies. When applying for a loan, having a co-signer can be helpful if your credit isn’t high enough for prime rates.

To acquire the greatest loan available, you should shop around for different interest rates and terms from different lenders before deciding on one. A marketplace such as Credible facilitates the application process by matching borrowers with many lenders and does so without negatively impacting a borrower’s credit score.

3. You Might Have a Reduced Monthly Payment

Consolidating your obligations into one loan could help you save money by reducing the interest you pay or by extending the time period during which you pay it off. When the interest rate on a loan is reduced, the borrower can take the same amount of time to pay it off without increasing the monthly payment.

If you borrow $10,000 and pay it back over ten years with interest at 16.30%, your monthly payment will be $169. At 9.58% interest, however, the same loan duration results in a $130 monthly payment.

If you extend the period of your loan, you can lower your monthly payment. If you borrow $10,000 for 15 years at 9.58% interest, your monthly payment will be $105. If the debt is putting a burden on your budget, a smaller monthly payment can make a great difference. 

You might use the additional funds to accelerate the debt repayment process. You could also put money toward retirement or your child’s 529 college savings plan, or you could use it to start a rainy-day fund or save for a down payment on a home.

Your total repayment amount will rise if you extend the time period during which you make payments. If the loan’s repayment term is increased from 10 years to 15, the borrower will pay $18,883 in total interest, despite the interest rate remaining unchanged at 9.58%.

However, there may be benefits as well. If, for instance, your interest rate is much lower than 9.2%, the average rate of return of the stock market over the last 10 years (as reported by Goldman Sachs), investing the difference may yield a larger return than paying off your debt more quickly.

Check out how much you could save or earn by investing vs paying off debt using several online interest rate calculators and term lengths.

4. Your Credit Score Might Rise

You may see an improvement in your credit score if you utilize a debt consolidation loan to pay off both your school loans and credit card debt. This is due to the fact that a portion of your score is based on your credit utilization ratio or the percentage of your total available credit that you are actually utilizing. 

Once you’ve paid off your credit card bills, your cards will show that their limits are no longer at their maximum, indicating that you have accessible credit. Avoid reusing or canceling the cards if you wish to keep your higher score. 

Fifteen percent of your score is based on your credit history, or how long your accounts have been active. If you close your previous accounts, your credit history will be erased and your score may drop.

Also, if you use your credit cards again, you’ll see a drop in your credit score, and the consolidation loan you used to pay it off would have been in vain. Create a plan to keep from adding any more purchases to your credit card balances.


Consolidating student loans with other obligations has a few benefits, but the cons often outweigh them.

1. Your Student Loan Repayments will Likely End Up Being Significantly Higher.

Personal loan interest rates may be lower than those offered by credit card companies or private student loan lenders. But the likelihood that the rate will be lower than your federal student loans is far smaller.

Personal loan interest rates average around 3%, with some lenders charging as much as 36%. Personal loan interest rates in 2021 are expected to be low, but you’ll need a high credit score to get the best rates.

Additionally, the most advantageous rates are typically variable interest rates, which move up and down according to market conditions. Since the Federal Reserve aims to increase interest rates over the next couple of years, even if your initial interest rate is lower than the interest rate on your fixed-rate student loans, it will eventually rise.

Before signing a loan agreement, it’s important to know if the interest rate will be fixed or variable. Direct loans from the federal government have interest rates of 3.73% for undergraduates and 5.28% for postgraduates in the upcoming 2021-22 school year. Interest on PLUS loans, whether they be graduate PLUS loans or parent PLUS loans, is currently set at 6.28%.

Even the federal student loans with the highest interest rates are competitive with the best personal loan rates in 2021, which most applicants won’t qualify for. Do not forget that the standard interest rate on a personal loan is close to 10%. Consolidating federal student loans with other debt would certainly result in a higher interest rate, so it is not a good idea to do so.

A personal loan may offer a more manageable interest rate than the private student loan you’re currently paying back, which may be as high as 13%. Nonetheless, you can still save a lot of money by working with a refinancing expert like a bank or credit union. We highly recommend both LendKey and Earnest.

2. You Could End Up Paying Back More on All Your Loans

If you have multiple debts, consolidating them into one may help you better manage them. However, this isn’t necessarily the most effective technique to pay down debt. It prevents you from systematically reducing your debt, which could extend the time it takes to eliminate your debt altogether.

If you’re considering debt consolidation because you’re having trouble keeping up with your bills and would like to reduce your monthly payments, you should read this first.

When deciding on a repayment plan, it may seem alluring to go with a more extended schedule. Consolidating debt, however, might result in a much higher interest rate and monthly payment than just keeping the original debt. Interest on the loan will substantially increase the total amount you have to pay back.

A temporary reprieve at the cost of perpetual debt is a risky proposition. If, for instance, you continue to put off saving for emergencies because of your loan payments, you may end yourself using credit cards again when a serious financial setback occurs.

Check the numbers to determine if it makes sense to prolong the loan term and so reduce your monthly payment. Try out various loan durations and interest rates using a payment calculator to see how they can affect your monthly budget.

3. You might have to pay an origination fee.

In addition to the interest, many debt consolidation loans have origination costs. There is one percent to eight percent origination cost. So, if you borrow $10,000, but the loan’s origination cost is 2%, you’ll actually receive $9,800. However, you must still pay back the entire $10,000 debt.

It’s possible to avoid lenders who charge this cost by choosing ones who don’t. If you decide to consolidate your debt with a personal loan, finding the lowest interest rate feasible should be your top priority.

If you’re successful in doing so, the one-time cost may be justified. If the lender you’re considering has origination fees, you’ll need to borrow more than the total amount of your debts to be consolidated plus the fee.

4. Your Credit Score Might Fall

Debt from credit cards and student loans are weighted differently in determining your credit score. Student loans are a type of installment debt, meaning that they are a one-time loan with a predetermined payment schedule and maturity date. Revolving debt, such as that carried by a credit card, is a line of credit that can be drawn upon repeatedly.

Therefore, using a personal loan to pay off credit cards is a good way to raise your credit score. On the other hand, if you pay off your student loans with your new debt consolidation loan, you’ll essentially be exchanging one installment loan for another, larger one.

There are two ways in which that could affect your credit score negatively; Firstly, it’s a brand-new loan. Your credit score will take a short-term hit whenever you take on new debt. Second, the loan amount would be higher if you intend to use it to pay off existing debt. A decreased credit score is a common result of increased debt.

5. You Won’t Have Access to Options for Paying Off Student Loans

Consolidating federal loans with a private loan means you no longer have any federal loans at all. If that happens, you can forget about using any of the federal programs that delay or reduce payments. The government repayment schemes, such as income-driven repayment, extended repayment and graduated payback, are no longer available to you.

It’s easy to dismiss these choices if you’re pursuing debt consolidation as a means of swiftly eliminating your debt. It is, of course, impossible to predict the future. And if you’ve been thinking about consolidating your debt to reduce your monthly payment, income-driven repayment may be the solution you’ve been looking for because it bases your payment amount on your actual income rather than some hypothetical amount.

The Public Service Loan Forgiveness Program is just one of many student loan forgiveness options available to those who enroll in income-driven repayment. Avoid changing your federal student loans into private loans if you are working in a public sector job where you may be eligible for loan forgiveness after 10 years.

If you have private student loans and want to combine them into a personal loan, you will no longer have the benefits of private student loan repayment plans, borrower protections, and other student loan borrower perks.

Private student loans often have fewer repayment alternatives than federal student loans; nevertheless, these loans do provide some flexibility, such as interest-only payments or low flat-rate payments while you’re in school or experiencing economic difficulty. Many additionally allow for early termination or cancellation in the event of the employee’s death or total and permanent disability.

In addition, unlike federal student loans, private student loan interest can be written off on your taxes. This is not the case with a private loan.

The Verdict

Consolidating your student loan debt with credit card debt is possible, but it’s usually not a good idea. Organizing debts into categories based on their similarities is the most effective method. 

That is to say, consolidate your federal student loans with a federal direct consolidation loan, your private student loans with a private refinance loan and your other debts with a personal loan. Consolidating your student loans and other debts together could make sense in some circumstances, but you have alternative options that are more viable.

If you have multiple federal loans, you may qualify for a federal direct consolidation loan to consolidate them into one manageable debt while maintaining eligibility for federal repayment programs and borrower safeguards.

Finally, a refinance student loan often offers a more favorable interest rate and payback schedule than a personal loan does for borrowers with existing private student loans. You should shop around for the best interest rate and terms by comparing loans, repayment schedules, and borrower bonuses from several lenders.

Personal loans can be used for debt consolidation once all other options have been exhausted. In fact, your chances of being accepted for a student loan refinancing rise if you first choose to consolidate your other debts.

As an illustration, CommonBond considers the applicant’s free monthly cash flow. If you could reduce your monthly debt payment, it would free up some more money.

Obtaining the best rate and terms on a personal loan can be done in much the same way as refinancing a student loan by browsing the offerings of several lenders on a marketplace such as Credible. With a soft credit inquiry, Credible may find you prequalified offers without affecting your credit score.

This is crucial if you want to apply for many loans at once, which you should do if you’re considering consolidation. In the absence of a comparison tool like Credible, the lenders you choose to apply with will conduct a hard inquiry on your credit once you submit your final loan applications. 

Your credit score will temporarily decline as a result of this action, which may limit your access to future credit offers. You should only formally apply with one lender after doing some comparison shopping.

Bottom Line

Consolidating your school loans and credit card debt isn’t the cheapest option to pay off your debt. Still, be wary of fraudsters if you decide to consolidate your debt. Avoid paying any company to handle your debt consolidation for you. Finding a personal loan on your own is possible, and federal government consolidation services are always at no cost.

You should also be aware that even if you decide to consolidate your debts one at a time, consolidation may not be the best approach for you. Consolidating your student loans could cause you to lose eligibility for some loan benefits. 

Balance transfers between credit cards, debt settlement, direct negotiations with lenders, and bankruptcy are all viable alternatives to taking out a new loan to pay off existing debt. Consider your debt management and debt repayment alternatives to choose the one that best fits your needs.

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