Update: As of February 18, 2025, a federal court issued an injunction that requires a pause on Direct Consolidation Loans being credited with a weighted average of payments based on the count of the underlying loans.
Federal loans of various types can be combined into a consolidation loan. The loan will stay a federal loan, and the interest rate will not change significantly - the weighted average is typically rounded up to the nearest eighth of a percent. When you consolidate, you’re able to select a new servicer for the new loan.
“Consolidation” can be a bit of a misnomer - it can mean combining multiple loans into one, but it can also be used to change an older loan type, like FFEL or Parent PLUS loans, into a new Direct Consolidation Loan with access to more federal loan programs such as Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR). PSLF-ineligible loans must be consolidated and have the new Direct Consolidation Loan disbursed by June 30, 2026, to maintain access to the current IDR plans, PSLF, or IDR Forgiveness.
It’s important to note that a consolidation loan is considered a new loan. As of July 2024, Direct Consolidation Loans will be credited for a weighted average of payments based on the count of the underlying loans, whereas previously, consolidating meant that any progress toward forgiveness was lost.