The most glaring difference is that, with a Federal Consolidation Loan, your interest rate is fixed in keeping with a federal formula, while private consolidation interest rates can be either fixed or variable.
Variable means that the interest rate can increase at any moment.
It is quite common for people with student loans to deal with 10-12 lending institutions, which means 10-12 payments and 10-12 due dates each month.
When you consolidate student loans – either federal or private – it’s one payment to one lender, once-a-month. Loan consolidation for student loans was created to make it easier for millions of borrowers to pay off their debt.
There is only one debt relief option that allows you to combine both federal and private student loans together. None of the above are guaranteed if you use federal repayment plans.
If fact, if you keep your federal and private loans separate, the best you can hope for is two payments.
You can’t consolidate private loans in the federal Direct Consolidation Loan program, but some private lenders allow you to consolidate federal and private loans together.
Think about it: you just graduated from college and you have a combination of about five different student loans. However, there are times when combining all of your loans (both Federal and private) makes sense, and there are times when it may not.
What’s more, if your income changes then your monthly payment requirement may change, too.
Another strong reason to convert federal student loan debt into a private loan is to achieve a lower interest rate.
However, some borrowers can qualify for the government's Extended Repayment Plan.
Borrowers who consolidate student loans through the Federal Consolidation Loan Program can refinance one or multiple student loans into one new fixed-rate loan.