The process of student loan consolidation can take as little as a couple of weeks to as long as several months.
The total amount of time and the exact number of steps depends upon a number of factors. The biggest factor affecting the consolidation timeline is whether the consolidation is done through a federal direct consolidation or a private company.
Federal Direct Consolidation
Consolidating federal loans with the government is a pretty easy process. There is really only one form to complete, and then it is a waiting game. The tricky part is deciding if federal consolidation is a good idea.
All federal direct consolidation takes place at studentloans.gov. According to the Department of Education, the application itself only takes about thirty minutes. After that, a long wait begins.
Once the application is complete, the consolidation people will reach out to the borrowers existing federal loan holders to get final payoff numbers. Once they have final payoff numbers, the borrower will receive a letter detailing the new consolidated loan, new interest rate (the weighted average of existing loans), and new loan servicer. At that point borrowers can either call to cancel the consolidation, or do nothing and the consolidation processes within a few weeks.
The work happening behind the scenes isn’t particularly complicated, but it does move at the speed of government, so it takes time. For borrowers, the important thing is to make sure that the proper loans are included in the consolidated loan.
Federal consolidation typically takes between 2-3 months.
Private Student Loan Consolidation
For borrowers consolidating private loans, or consolidating federal loans with a private company, the process is much different. The total time for consolidation can vary greatly.
One important step is shopping around. With a number of different student loan consolidation companies in the market, research at the beginning of the process is essential.
The initial application with each lender is not particularly time-consuming, and applying with several different lenders is a good idea because it will help find the best rate. Initial approvals can be instant, or happen within a few days. Some may need more detailed income information, so it could take longer.
The next phase has a couple of steps happening at once. The refinance lender will be collecting information from the borrower to verify income and ability to pay. The refinance lender will also be reaching out to exiting loan holders to get final payoff information with the existing loan companies. The amount of time that this takes varies greatly. Some companies will not reach out to lenders until all the borrower information reaches final approval, others will be working on both tasks at the same time. Getting final payoff information from existing lenders is a huge variable, because some companies make the process very easy, while others put more steps in the way.
Once the old loans are paid off, borrowers begin repayment with the new lender according to the terms of the new agreement.
In total, the process can take as little as a couple of weeks and take as long as a couple of months. However, this passage of time occurs while the lenders are working. The borrower usually invests no more than a couple of hours of their own time.
The Bottom Line
Student loan consolidation takes a while due to the fact that old loans first must be paid in full. At that point a new loan is generated. For borrowers, consolation is an opportunity to save money. As such, the consolidation wait is a good investment of time.