Should I consolidate or refinance my student loans?

It depends on whether you'd rather keep federal benefits or get a better rate.

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While consolidation and refinancing often work the same way with other types of debt, they’re very different when it comes to student loans. Consolidation is only available for federal student loans and can help you qualify for more repayment plans and forgiveness programs. Meanwhile, refinancing is open to both federal and private student loans and might be able to help you save more in interest.

Student loan consolidation vs. refinancing

ConsolidationRefinancing
Best for when …You want to apply for forgiveness, switch servicers without losing federal benefits or access to more repayment plans.You want a better rate or a different servicer.
How it worksTake out a federal Direct Consolidation Loan to pay off your current federal loans with a weighted average of your current rates, more repayment plans and the option to switch servicers.Take out a new loan from a private company with a new interest rate, term, repayment plan and servicer.
Benefits
  • Multiple repayment plans
  • Eligible for Public Service Loan Forgiveness (PSLF)
  • Wide range of deferment and forbearance options
  • No credit check or cosigner required
  • Chance to get a lower rate
  • Pay off private and federal loans together
  • Potentially pay off your debt faster without upping the monthly cost
  • Combine parent and student loans
Drawbacks
  • Might actually get a higher rate
  • Doesn’t include private loans
  • Can’t save on monthly and total loan cost
  • Can’t mix parent and student loans
  • Lose federal loan benefits
  • Only one repayment plan
  • Hard to qualify straight out of school
  • Fewer parent loan options

How does student loan consolidation work?

Student loan consolidation works by taking out a federal Direct Consolidation Loan to pay off your current federal loans — including Parent PLUS Loans. Your new loan comes with an interest rate that’s the weighted average of your current interest rates, though you have the option to pick a new federal repayment plan and servicer. You don’t need to have good credit or a cosigner to apply for consolidation.

Consolidating your loans can be a great way to expand your federal benefits — you’ll qualify for more repayment plans and your FFEL and PLUS Loans become eligible for PSLF.

When should I consider student loan consolidation?

You might want to consider consolidation if one or more of the following statements applies to you:

  • You don’t want standard repayments. You can choose from a wide range of federal repayment plans after consolidating, including graduated and income-driven repayments.
  • You’re interested in federal forgiveness programs. Consolidation can help you qualify or remain eligible for PSLF and Teacher Loan Forgiveness.
  • You might return to school. You can defer your Direct Consolidation Loan if you enroll in another degree program.
  • You have Parent PLUS Loans. Even if you’re not interested in forgiveness, most lenders won’t refinance Parent PLUS Loans.
  • You want a new servicer without losing federal benefits. Consolidating federal loans is one of the few ways to change your servicer while staying eligible for flexible repayment plans and federal forgiveness programs.

When should I hold off on consolidation?

You might want to avoid consolidating in the following situations:

  • You have parent and student loans. You can’t consolidate parent and student loans together.
  • You’ve already made repayments toward PSLF. You’ll have to start over from scratch if you consolidate, meaning it might not be worth it.
  • You want a lower rate. Direct Consolidation Loans might actually come with a slightly higher interest rate than what you were originally paying due to how the Department of Education calculates your weighted average.

How does student loan refinancing work?

Student loan refinancing works by taking out a new loan with a private company to pay off your current student loan balance — both federal and private. The rates and terms of your new loan depend on your credit, income and other aspects of your personal finances. If you can’t qualify on your own, you can apply with a cosigner to get a more competitive deal.

Refinancing can be a great way to save on interest in both the short and long term. Getting a lower rate can make it easier to pay off your loans faster with no change in your monthly cost. Or it can help you lower your monthly cost without paying more in interest if you get a longer term.

When should I consider student loan refinancing?

You might want to consider refinancing your student loans if any of the following situations ring true for you:

  • You’re settled in a high-paying job. You likely won’t benefit from most federal loan perks and a standard repayment plan likely fits your budget.
  • You want a lower rate. Refinancing is the only way to change your rate, though you need excellent credit to qualify for a better deal — or a creditworthy cosigner.
  • You want to combine federal and private loans. Private loans aren’t eligible for student loan consolidation.
  • You want to refinance parent and student loans together. If you’re paying off student loans for yourself and a child, refinancing is the only way to combine the two.

When should I hold off on refinancing?

Think twice before refinancing your student loans in the following situations:

  • You don’t want standard repayments. You generally only have one repayment option when you refinance with a private lender.
  • You might want to go back to school. You might not be able to defer your loan if you decide to get another degree.
  • You have bad credit. You’ll have a hard time qualifying for a better deal unless you have a creditworthy cosigner.
  • You’re struggling with other debt. With limited deferment and forbearance options with private lenders, you won’t have the flexibility to put your student loans on the back burner while you handle higher-interest debt.
  • You want to apply for forgiveness. Private loans have fewer forgiveness options than federal loans.

Not sure which is best? Let’s take a look at an example …

Say you have $15,000 in federal student debt: A $10,000 loan with a 4.7% interest rate and a $5,000 loan with a 6% interest rate.

You’re torn between consolidating your debt with a Direct Consolidation Loan with the 10-year Standard Repayment Plan or refinancing. You prequalified for a 15-year term with a 4.5% interest rate with a private student loan refinancing provider.

Here’s how the two options compare:

ConsolidationRefinancing
New interest rate5.25%4.5%
Monthly repayment$160.94$114.75
Total interest cost$4,312.51$5,654.82

In this case, consolidation might be a better deal. While it costs you a little more per month, you can get out of debt faster and save over $1,000 in interest.

But you could also choose to make extra repayments toward a refinanced loan to pay it off in 10 years. In that case, refinancing could be a better deal since it comes with a lower rate.

Compare student loan refinancing offers

Updated November 14th, 2019
Name Product Min. Credit Score Max. Loan Amount APR
680
$250,000
3.49% to 6.99%
Enjoy no fees, low rates and flexible terms — but only for borrowers with good credit.
660
None
Starting at 2.45%
Save on your student loans with this market-leading newcomer.
Good to excellent credit
None
Starting at 1.81%
Get prequalified offers from top student loan refinancing providers in one place.
680
None
2.39% to 6.01%
Lower your student debt costs with manageable payments, affordable rates and flexible terms.
650
None
1.81% to 6.49%
Get a tailored interest rate and repayment plan with no hidden fees.
650
Full balance of your qualified education loans
1.81% to 5.98%
A leader in student loan refinancing, SoFi can help you refinance your loans and pay them off sooner.
620
$300,000
2.27% to 7.49%
Refinance all types of student loans — including federal and parent PLUS loans.

Compare up to 4 providers

Bottom line

Student loan refinancing and consolidation serve different purposes. Consolidation is usually a way to expand access to federal benefits, while refinancing is usually a way to save on costs. Which option is right for you depends on your finances and priorities.

You can check out our guides to student loan refinancing and Direct Consolidation Loans to learn more about how each works.

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