People consolidate student loans to lower their monthly debt. When you consolidate, your original loan amount is paid off in full in return for a new loan for the combined balances. This new loan will have lower interest rate that is fixed for the life of the loan.

When you consolidate student loans, you could reduce your monthly payments by upto 54 percent. Other advantages include reducing your interest rate by 1 percent after you maintain your on-time payment record for a certain period. Also, there are no pre-payment penalties on consolidated loans.

In case a student has a mixture of federal and private loans, then it is not advisable to consolidate them together. This is because the two kinds of loans will likely have different rates of interest.

Obviously, federal loans can be consolidated only after the student has come out of school. One condition is that the student must not be defaulting on payments and there is a minimum amount of loan that can be consolidated. In most states this minimum limit is $10,000. Consolidation of private loans has laxer rules, but then the expenses are higher.

Benefits of student loans consolidation:

Student loan consolidation is very beneficial for students suffering from multiple debts. Student loan consolidation helps them to merge all their debts into a single debt with low interest rate. Student loan consolidation carries low interest rate and hence can be easily repaid. Student loan consolidation helps you to get rid of all your loans and enjoy a debt free life. Student loan consolidation can also be availed by students having bad credit history. With the help of student loan consolidation, students having bad credit history can increase their credit score by paying the loan installments regularly.

When a student approaches a debt consolidator, he/she would take some money from the student and put it into an escrow account. When sufficient amount of money is built up in this account, then the consolidator would initiate talks with the creditors and request them to lower their rates of interest. Once this is done (and if it is done), the consolidator will pay off their debts from the escrow. The student will then have to pay back only to the consolidating agent.

Schools themselves come forward sometimes and suggest names of reputable debt consolidating agencies to their students. Or else, the government also helps in consolidation, provided the loans are federal loans. This is done by referring the student to a debt consolidator.