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Student Loan Refinancing Vs. Consolidation: Which Is Best for You?

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college graduate
Danielle Greving author image
Danielle Greving
Dec. 28, 20225 min read
Do you have hefty student loans that you’re still working on repaying? Are you wondering if there’s a smarter way you could be repaying them, either through refinancing or consolidation?

Repaying student loan debt is a huge stressor for many, and it’s no secret that millions of Americans are burdened with student loan debt. Due to the Biden Administration’s student loan debt relief efforts, the country’s student loan balance experienced its biggest drop in 20 years, with the accumulated debt falling from $1.59 trillion in the second quarter of 2022 to $1.57 trillion in the third quarter.

However, in November of 2022, a federal judge in Texas declared the student loan debt relief program illegal and struck it down nationwide. Now, the program is in legal limbo and millions of borrowers are waiting anxiously to see if they’ll receive debt relief.

If you are one of the Americans who has been affected by the pause of the program, or if you just want to get a better handle on your student loans, now is a great time to consider refinancing or consolidation.

Which option is best for you? Read this guide to learn how to choose between student loan refinancing and consolidation.

Refinancing vs Consolidating: the Main Difference


Student Loan Consolidation Student Loan Refinancing
What does it do?Combines multiple federal loans (not private loans) into one loan. Combines private or federal loans into one private loan. 
What loans can I combineOnly federal loans. Federal or private loans.
Can it lower my rates? No. Yes. 
Will I save money? No. (Consolidation may lower your payments by extending the loan term. However, the interest rate will increase, meaning you’ll end up paying the same in the long run.)Yes.
Will I only pay one monthly bill? Yes.Yes.
Will I have access to federal protections, forgiveness programs, or repayment options? Yes.No.

Student Loan Refinancing: What to Know

To pay for college, you likely used a mix of loans from the federal government and private lenders. The balances, interest rates, and terms of each of these loans likely vary.

Some of your loans may have fixed interest rates, while others may have variable interest rates. Student loan refinancing, which can only be done through a private lender, allows you to combine all of your student loans (both federal and private) into a single, more affordable loan. The newly refinanced loan will come with a new interest rate, which, if you have a good credit score, could be much lower, saving you a considerable amount on interest payments in the long term.

Benefits of refinancing student loans

Here are some of the biggest benefits of refinancing your student loans.

  • Lower monthly payments. Lower monthly payments means more cash in your pocket at the end of each month. This could result in thousands of dollars of savings over the life of your loan.
  • Faster repayments. With a lower interest rate, you may be able to select a shorter repayment term. This can allow you to repay your loan sooner without increasing your monthly payments.
  • Predictable, fixed monthly payments. If your current loans have variable interest rates, they’re subject to rise or fall at any given moment. This can make it difficult for you to predict what your monthly payments will be. Refinancing allows you to switch to a fixed-term loan so you’ll have the exact same interest rate throughout the loan’s life.
  • Term options. If you want to lower your payments, you can extend the life of your loan from the standard 10-year repayment period to 15 or 20 years.
  • Easier payments. With refinancing, you only have to deal with one monthly payment.

Drawbacks of refinancing student loans

The benefits of refinancing are pretty significant. However, before you jump into the refinancing process, it’s important to understand the drawbacks.

One of the biggest things to keep in mind is that you need to have a good credit score or a co-signer to qualify for a lower interest rate. If your credit score is average or poor and you can’t find someone to cosign you, lenders likely won’t offer you lower rates, and you therefore won’t save anything by refinancing.

Additionally, refinancing isn’t a good idea if you’re trying to take advantage of federal loan forgiveness programs, such as public service loan forgiveness programs, which allow you to receive forgiveness on your loans after you’ve made 60 qualifying payments. This is because refinancing always results in combining your various loans into private loans, and the government cannot forgive private loans.

You’ll also lose access to income-driven repayment programs, which give you access to specific loan repayment terms based on your income and personal economic situation.

Student Loan Consolidation: What to Know

Student loan consolidation involves combining all of your existing federal student loans into one federal loan.

Benefits of Consolidating Loans

Consolidating comes with some great benefits, including the following.

  • Easier payments. The main benefit is that you don’t have to worry about making multiple payments per month. Consolidating means you only have to manage one loan, and, therefore, only deal with one monthly payment.
  • Extended terms. Consolidating allows you to extend your loan term, which can result in lower monthly payments. However, this means you’ll end up paying more interest over time, so think carefully before you make this decision.
  • Predictable payments. When you convert your variable-rate loans into one loan with a fixed interest rate, you’ll always know exactly how much you’ll be paying each month.
  • No credit requirements. Unlike refinancing, you don’t need to have a certain credit score or a cosigner to qualify to consolidate your loan. You just need to fill out a form through a government website.
  • Maintain Federal protection. Perhaps the biggest benefit of consolidating your loan is that it allows you to hang onto any federal protection benefits that you qualify for, such as the public service loan forgiveness program. So, if you’re currently pursuing or are planning to pursue a career that would qualify you for loan forgiveness, then consolidation is the way to go.

Drawbacks of Consolidating Student Loans

While refinancing allows you to combine federal and private loans into one loan, you can only consolidate federal loans. Additionally, your interest rate won’t lower when consolidating.

Keep in mind that you can always refinance your consolidated loan with a private lender at a later date if you realize you no longer need federal protection benefits. However, once you refinance, you lose these federal protection benefits, so think carefully before doing so.

Consolidating Your Student Loans: Next Steps

The processes for consolidation and refinancing loans are different. If you wish to consolidate your loans, you’ll need to fill out an application via the government’s website for consolidating student loans.

Log into the platform and select “Complete Consolidation Loan Application and Promissory Note.” You’ll need to finish the application all in one session, so make sure you’ve gathered all of the required documents. You can find these listed on the website’s “What do you need” section.

Then, you’ll enter the loans you want to consolidate and choose a repayment term. Read the terms before submitting your application, and continue to make your payments as usual until you’ve been notified that you’ve been approved for consolidation.

Refinancing Your Student Loans: Next Steps

The refinancing process is a bit more complicated than the consolidation process, as you’ll need to do some shopping around before getting your loan. There are dozens of private loan companies out there, and you’ll need to request quotes from a handful of them to find the best rate for your needs. The good news is, requesting a quote is free and doesn’t affect your credit score, so you can get quotes from as many companies as you want.

Once you’ve found a private lender to work with, you’ll need to follow that company’s individual instructions for refinancing. Luckily, the process can usually be completed in a few short weeks. As is the case with consolidation, make sure you continue with your loan payments until you’ve been officially approved for refinancing.

Refinancing vs Consolidating Your Student Loan: Which Option is Best for You?

Now that you know the benefits and drawbacks of refinancing and consolidating, it’s time to determine which option is best for you. In simple terms, refinancing is best if you want to save money, while consolidating is best if you want to maintain your federal protection benefits.

However, the option that’s best for you really depends on a number of factors, including the types of loans you have, their interest rates, your goals, your income, and your creditworthiness. You should have the tools now to do more research and figure out the right choice for your situation.

Danielle Greving author image
Written byDanielle Greving

Danielle is a tech and finance writer with experience in personal finance, cryptocurrency and numerous SaaS companies. Her bylines can be found on MoneyTips, CoinMarketCap, GraniteShares and Top10.com. An avid traveler and former ESL teacher, Danielle's writing blends a wealth of technical and financial knowledge with simple and straightforward explanations for everyday readers.

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