Student loans are the most common way to finance an education. However, once someone walks across that graduation stage, reality can hit hard. The clock has begun counting down the number of days before the repayment process begins.The average college student racks somewhere around $20,000 in debt from student loans. Depending on the type of loan and interest rates, this roughly translates into a monthly payment of around $250. The number of loans also makes a difference. Most students have multiple ones, often from different lenders.
To lower those stiff monthly payments, many consider loan consolidation. This process allows for all of a student’s debt to be aggregated into one lump sum. A single lender pays off the existing loans, and the graduate has a single monthly payment. The process is similar to mortgage refinancing.

Loan consolidation works by doing two things: it lumps all of the debt together and it changes the terms of repayment. By stretching payments out, or by lowering the interest rate, some students can benefit from it. Nevertheless, it may not be a solution for everyone.
Federal Loans- FFELP (Stafford, PLUS, and SLS)
Law prohibits Federal student loans from being consolidated with private ones. This means that if a graduate has a mix of federal and private debt, there will still be more than one payment.
To complicate matters even further, the rules have changed about Federal loans. Prior to 2006, these loans carried a variable interest rate. This meant that refinancing could potentially save money by locking in a lower fixed rate. Consolidating them was profitable for lenders and beneficial to graduates.

After 2006, the interest rate on FFELP was changed to a fixed rate. Because of this, the benefit of consolidating federal loans has been all but eliminated. Commercial lenders usually do not even offer this option. Instead, graduates can visit US Department of Education’s Federal Direct Loan Consolidation program at loanconsolidation.ed.gov.
The bottom line on consolidating federally financed student loans is that there is very little benefit. Other than reducing the number of payments due each month, the terms are not likely to change.
Income Based Repayment Plan

There are a few advantages for those who are not able to make their payments, such as alternative repayment plans. The income based repayment plan is perfect for careers that have very low starting salaries. It works by placing a cap on the maximum amount of a payment, based on a percentage of income.

This plan is open to everyone who has federal loans. The actual percentage is determined by the difference between a person’s adjusted gross income and 150% of the federal poverty level. It could potentially lower the payments by as much as 34%.
As a person’s salary increases, so does the payment amount. The term of this plan is spread out over twenty-five years. If there is a balance remaining after that time, it is forgiven. People in the repayment phase can still quality. Depending on how long a borrower has been paying, it may not be a smart move. Once signed on, the loan restarts at twenty-five years. It makes no difference how long someone has been making payments.
Consolidating Private Lender Loans

This is the primary area where a graduate will benefit from student loan consolidation. It is important to remember that while a borrower can significantly lower their monthly payments, it may not make sense to do so. Refinancing adds several years to the length of a loan, which could mean thousands of more dollars in interest.

Situations in which a student will benefit from student loan consolidation are numerous. One such advantage is if the credit score has improved since the loan originated.
Another plus is that a co-signer can be removed from the loans. A student needs to be making regular payments for one to two years before this can happen, though.
Critical questions to ask a consolidation lender are whether or not they charge origination fees, what the life of the loan is, and what the maximum interest rate will be. Pre payment penalties should also be a consideration, in the event of early pay off.


*Source: http://www.finaid.org/loans/consolidation.phtml
http://www.studentloanborrowerassistance.org/repayment/repayment-plans/