How does college student loan consolidation actually work?

When your student loans are consolidated, all of the outstanding balances of your existing student loans are paid off, with the total balance rolling over into one consolidated student loan. The end result is that you have only one FIXED RATE student loan to pay on.

A student consolidation loan combines several federal student or parent loans into a single larger loan. Most federal loans can be consolidated: Stafford, PLUS (Parent Loans to Undergraduate Students), Supplemental, Direct, Perkins and others. Some lenders will consolidate private college loans as well. The U.S. Department of Education offers Direct Consolidation Loans (www.ed.gov/directloan/ or 800/557-7392), as do many private lenders (www.finaid.org links to several private lenders).
A consolidation loan reduces the size of the monthly payments, usually by extending the terms of the loan beyond the normal 10 years, to 20 or even 30 years. That makes it more manageable for borrowers to make payments, especially younger people lower on the pay scale. Sometimes consolidation is necessary for people to qualify for a home mortgage.
Consolidation may especially be warranted if you’re not making payments and risk default on your loans. This will hurt your credit rating. Furthermore, the federal government can divert your tax refunds toward the loans or garnish your wages, even on very old student loans. Consolidation also can help you put the saved dollars toward
higher-interest debt such as credit cards. Credit-card debt isn’t tax deductible, while you may be able to deduct up to $1,000 in student loan interest.