Editor's choice: Splash Financial Student Loan Refinancing
- Good for high debt loads
- Referral bonuses
- Parent loan refi option available
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Student loan consolidation — also known as refinancing — involves taking out a new loan with different rates, terms and features to pay off your current student loans. Consolidation gives you one monthly repayment and often allows you to switch your servicer if you’re unhappy with the company that handles repayments.
How consolidation works depends on what type of student loan you have: federal or private.
Federal student loan consolidation refers to taking out a Direct Consolidation Loan. This is a federal loan that allows you to continue to take advantage of programs like income-driven repayments and forgiveness.
You don’t need good credit to apply, though you can only use it to consolidate federal student loans. This type of consolidation allows you to explore more flexible repayment options — like 30-year terms — and switch up your servicer. However, your rates generally remain the same.
Private student loan consolidation is typically referred to as student loan refinancing. It involves taking out a new loan with a private lender to pay off all or some of your student loans. You can refinance both federal and private loans together, though you’ll lose some benefits on your federal loans.
You generally need strong credit and a low debt-to-income ratio to qualify for a better deal when you refinance. Ideally, refinancing can help you qualify for a lower rate, longer loan term or give you access to benefits like reduced repayments during a medical residency.
|Federal student loan consolidation||Private student loan refinancing|
|Which loans can I consolidate?||Federal||Federal and private|
|Will I get one monthly payment?||Yes||Yes|
|Can I lower my interest rate?||No||Yes|
|Is a credit check required?||No||Yes|
|Can I change my servicer?||Yes||Yes|
|Will I lose federal student loan benefits?||No||Yes|
The process for consolidating your student loans differs depending on whether you’re taking out a federal Direct Consolidation Loan or refinancing with a private lender.
You can apply for a Direct Consolidation Loan by completing a form on the Department of Education’s Federal Student Aid (FSA) website or downloading a PDF and mailing it in. The application typically takes 30 minutes to complete and asks you basic questions about yourself, your current loans and the repayment plan you’d like to use for your new loan.
Many lenders offer student loan refinancing, so start by comparing providers. Go in with a goal in mind, like securing a longer term, lower rate, more flexible repayments or a different servicer.
Once you’ve narrowed down your choices to a few lenders, find out what rates you can prequalify for before settling on one. You can usually complete the application by filling out a form and uploading documents online.
It’s possible to consolidate student loans with other types of debt if you take out a personal or home equity loan. Some people prefer to do this as part of a larger debt consolidation plan.
However, you’ll have even less flexibility when it comes to repayments and lose eligibility for almost all forgiveness programs — even those available to private student loan providers. Unless your debts are extremely unmanageable, you might want to stick to a student loan refinancing provider.
Which type of consolidation is right for you depends on your unique circumstances.
Student loan consolidation works differently depending on the type of student loans you have. Federal loan holders might benefit the most from a Direct Consolidation Loan. However, if you’re a high earner with strong credit, student loan refinancing could actually be a more favorable option.
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