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How to Consolidate or Refinance Student Loans

The pros and cons of consolidating and refinancing.

How to Consolidate or Refinance Student LoansAfter graduating or leaving school, you can consolidate or refinance student loans to help you with repayment and payoff.

However, consolidation and refinancing often get used interchangeably but are quite different. For example, consolidation means combining multiple federal loans into one new loan with the US Department of Education. With student loan refinancing, you’re applying for a new loan with a private lender to refinance one or multiple loans together.

First, let’s discuss the different types of student loans.

Types of Student Loans

The federal government offers federal student loans to help pay for your education. With federal loans, payments are not required until after graduation or separation from school. Additionally, federal loans come with benefits such as income-driven repayment plans and loan forgiveness.

On the other hand, private student loans are nonfederal loans. These loans are offered through banks, credit unions, a state agency, or a school. Payments might be immediate or after graduating or leaving school. They do not have the same federal protections or benefits but interest rates may be a bit more competitive.

Learn more: Find all your student loans through the NSLD

Federal Loan Consolidation

Federal student loan consolidation is through the federal government, not a private lender, through the Direct Consolidation Loan Program. Consolidating is a free and simple process. And does not take into account your ability to repay or credit history. Some benefits include:

  • One bill each month, instead of multiple bills
  • Switch from variable-rate to a fixed-rate loan
  • Lower payments through an Income-Driven Repayment

When consolidating federal loans, you are taking a new loan called a Direct Consolidation Loan. The interest rate is the weighted average of all consolidated loans, rounded up to the next ⅛ of 1%. This new loan combines several federal student or parent loans into one larger loan, which replaces your original federal student loans.

Learn more: Ultimate Guide to Student Loan Consolidation

Student Loan Refinancing

Student loan refinancing is offered by private lenders. They refinance one or multiple federal loans, private loans, or both types into one new student loan. The private lender pays off your student loans and underwrites a new private loan with a new rate and term. Some benefits of refinancing:

  • Better interest rate
  • Shorter loan repayment term
  • Potential lower monthly payment
  • Save on total interest payments

Refinancing is helpful when you’re looking to lower your interest rate and want a shorter term.

Learn more: Ultimate Guide to Student Loan Refinancing

Consolidation versus Refinancing

One similar benefit of consolidation and refinance is having one payment per month versus multiple payments and locking in a potentially lower fixed interest rate.

Consolidation Advantages

Consolidating your federal student loans into a Direct Consolidation Loan offered by the US Department of Education. It will give you access to several alternate repayment plans which include extended repayment, graduated repayment and IBR (Income-Based Repayment). Choosing to extend your payment can reduce your monthly payment but will increase the total interest paid over the life of the loan.

Refinancing Advantages

Student loan refinancing is only available from private lenders. Refinancing your student loans from a private lender will assess eligibility and approval. Through refinancing, a private lender will look at your employment, financial track record, income, and credit history to give you ideally a new interest rate. A private lender can refinance both private and federal student loans, essentially, consolidating multiple loans into one.

Find the best student loan refinancing options in the marketplace.

Should you Consolidate or Refinance?

Think about your student loan debt payoff goals. Student loan consolidation can lower your monthly payment with longer repayment terms and maintain federal benefits. This is a good option if you’re facing financial hardship or have a lower-income job. On the other hand, student loan refinancing can help you repay your loan sooner and reduce the total cost of borrowing.

Keep in mind, you can choose to consolidate some or all your federal loans through the Direct Consolidation Loan Program. And at the same time, you can choose to refinance only private student loans through a private lender. Or you can refinance both federal and private together. Always read the fine print and understand the new terms of the new private loan.

The benefit of refinancing both federal and private student loans together is to make repayments easier through one single payment versus multiple. Do the math and determine which option is best for you.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of and His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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