Student Loan Refinancing vs. Consolidation

Loans come with many requirements and concepts that many students likely have no knowledge of. Imagine hearing the terms “Student Loan Refinancing” and “Loan Consolidation” without knowing what it actually means. The meaning of  Student Loan Refinancing is when you apply for a loan under new terms that will allow you to use that same loan to pay off one or more existing loans. Loans Consolidation simply means multiple loans combined into one. Read on to learn more about Student Loan Refinancing and Loan Consolidation so you know which option is best for you.

Federal loan consolidations are offered by the government and are available for most types of federal loans, although, private loans are not allowed. When you choose to consolidate with the government, your existing federal loans are combined into one new loan with a new rate, which is a weighted average of your old loans’ rates. 

Private loan consolidation also allows you to combine multiple loans into one. The difference is that the consolidated loan is not the weighted average of your loans’ rate. A private lender will look at your track record of handling debt and other financial information to give you a new (ideally lower) interest rate on your consolidation loan. Furthermore, when you consolidate student loans with a private lender, you are in fact refinancing those loans. Nonetheless, both student loan refinancing and consolidation combine multiple loans into a new one.


The potential benefits of a Federal Loan Consolidation may include:

  1. Each month there will be fewer bills and payments to keep track of.
  2. The ability to switch out older, variable rate federal loans for one fixed rate loan, which could protect you from having to pay higher rates in the future if interest rates go up.   
  3. Lower monthly payments. However beware – this usually results in the lengthening of your payment term, which means you’ll actually have to pay more interest in the long term.


Benefits of choosing Student Loan Refinancing may include:

  1. Lower your monthly payments.
  2. Shorten your loan term to pay off debt sooner.
  3. Save money on total interest.
  4. Choose a variable interest rate loan, which can be a cost-saving option if you plan to pay off your loan relatively quickly.
  5. Enjoy the benefits of consolidation, including one simplified monthly bill.

Unlike consolidation, student loan refinancing is only available from private lenders. Though most private lenders will only refinance private loans, lenders such as SoFi, will refinance both private and federal loans. That way you can consolidate all your loans into one.


Questions to ask yourself when choosing between student loan refinancing and consolidation?

Should you refinance, consolidate – or neither? Your decision should be based on your specific situation. Do you qualify to refinance at a lower rate? Do you plan to take advantage of the federal loan benefits? Answering these questions will assist you in deciding which direction to go to.

Private lenders offer 5, 7, 10, 17, and 20-year repayment plans. The option you choose will depend on what you’re most comfortable with. For instance, if you want to get out of debt as soon as possible a short term would be a good option for you.

If your objective is to lower your monthly payments, then a longer repayment period could help you achieve that.

If you have an unstable income, it might not be wise to refinance federal student loans with a private lender just yet. But, if you’re confident in your ability to pay back on a monthly basis, then you could benefit from refinancing your loans.

Consider a consolidation loan if:

  • You want to simplify your monthly payments.
  • You need to get on an income-driven plan.

Consider refinancing your student loans if:

  • You should consider refinancing with a private lender if you to simplify your monthly payments.
  • You have a solid job.
  • You have a good credit history.
  • Your loans have a high interest rate and you want to lower it with a new loan that has a lower interest rate.
  • You want to reduce the amount of time, it will take you to pay off your student loans.
  • You’re interested in choosing a longer term to lower your monthly payments.
  • You don’t need federal programs such as Income-Based Repayment or Public Service Loan Forgiveness.

Overall, both loan consolidation and refinancing come with benefits and setbacks. Deciding between the two comes down to your personal situation. If your main focus is to reduce federal student loan payments and/or on an income-driven repayment plan, loan consolidation might be a good fit. However, if you have a steady income and good credit score, refinancing your loans could be the better choice. Make sure you’re aware that you’re converting your federal loans into a private one.

There might also be a scenario when both options work for you. You could consolidate your federal loan to simplify your payments. Then, once you improve your credit score, you could apply for refinancing to get a lower interest rate. If you do your research, you’ll be able to choose the option that works best for you.



Dash, Stephen. “Student Loan Consolidation vs. Refinancing — Which Is Your Best Option.” The Huffington Post,, 11 May 2016, Mon. 11 June 2018

“6 Best Banks to Refinance and Consolidate Your Student Loans.” Student Loan Hero, Student Loan Hero, Mon. 11 June 2018

“Refinance Student Loans: Compare Top 10 Lenders Now.” NerdWallet, Mon. 11 June 2018

“Student Loan Options: What Is Refinancing vs. Consolidation?” SoFi, 23 Feb. 2017, Mon. 11 June 2018