Why "Average" is Wrong
You can't just add up your interest rates and divide by the number of loans. That's simple math, but it's wrong for debt.
Simple Average (Wrong)
Loan A (3%) + Loan B (7%) = 10% / 2 = 5%.
Misleading if Loan B is huge.
Weighted Average (Right)
If Loan B is $50k and Loan A is $5k, your true rate is much closer to 7% because most of your money is expensive.
When you consolidate federal loans, the government doesn't just take the exact weighted
average. They round up to the nearest 1/8th of a percent (0.125%).
Example: Your raw average is 6.31%.
New Rate: 6.375%.
This means consolidation almost always slightly increases your total interest cost.
Consolidation FAQ
No. Once you consolidate, the old loans are paid off and a new one is created. You cannot "un-mix" the eggs from the omelet.
Yes! Under the temporary IDR Account Adjustment (expires 2024), consolidating gives the new loan the highest payment count of the underlying loans. This is a massive "hack" for borrowers with mixed timelines.