Federal student loans include a complex consolidation option that gives borrowers the opportunity to combine several loans into a single loan with a longer term to maturity and, for loans originated before July 2006, to convert from a variable- to a fixed-rate loan. The consolidation option adds substantial costs to the federal student loan program. This Congressional Budget Office (CBO) background paper describes the valuation of a typical student loan consolidation option, one in which a variable-rate 10-year loan is converted into a fixed-rate loan with a term to maturity of 20 years. The following are appended: (1) Treatment of Amortization; and (2) Using the Term Structure of Interest Rates to Value the Consolidation Option. (Contains 1 table, 2 figures, and 13 footnotes.)