Student Loan Consolidation vs. Refinancing: What’s the Difference?

Back to All Articles

You’ve likely heard the term “student loan consolidation” or “student loan refinancing” and may have thought they mean the same thing. While they have similarities, you may be surprised to find out they are actually two different options when it comes to combining your student loans.

Student Loan Consolidation

Direct loan consolidation is a program offered by the Federal government that allows you to combine all of your federal student loans into a single loan. The interest rate for your consolidation loan is a weighted average of all the loans you are consolidating and is not based on credit, like student loan refinancing. You will also be able to switch your variable interest rate loans to a fixed interest rate to avoid having to pay more interest in the future if variable rates rise. Typically, student loan consolidation doesn’t save you money, but it simplifies your payments into a single monthly payment, and you get to keep all of the benefits that come with having federal student loans, such as income driven repayment plans and loan forgiveness.

Student Loan Refinancing

Student loan refinancing is a program offered by private lenders that allows you to combine your federal and private student loans into a new loan with a new term and interest rate. The interest rate of the loan is based on creditworthiness, unlike student loan consolidation. With student loan refinancing, you can pick a term that fits your financial needs and may save you money, but if you extend the term of any loan in an effort to lower monthly payments, you will pay more interest over the life of the loan. Many lenders have several borrower benefits with student loan refinancing, such as interest rate reductions for auto debit payments and cosigner release. Keep in mind, if you refinance federal student loans, you will no longer have the federal benefits associated with those loans. Find out if student loan refinancing is for you by asking yourself these 6 questions.

Both student loan consolidation and student loan refinancing can simplify your student loans into one monthly payment, but there are additional unique benefits to both options. Weigh the benefits of each program to decide the right option for your situation and with any loan, make sure you fully understand all the terms and conditions of the loan.

Back to All Articles