Student Loan Consolidation vs. Refinancing

Federal student loan consolidation and private student loan refinancing are not the same thing.

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When debating student loan consolidation vs. refinancing, either might be a good option for you — provided you understand their differences.

There are many reasons you should or shouldn’t consolidate or refinance student loans. Here's what to know about each option and how to decide if one is right for you.

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You may have heard the words “consolidation” and “refinancing” used interchangeably, but they’re actually two distinct repayment options.

Here’s a breakdown of some key differences between consolidation and refinancing:

Federal loan consolidation is a government process. Private consolidation, or , happens through private lenders.

To get a federal student loan consolidation, apply on the . Only federal student loans are eligible for this option, and you are entitled to this option if you qualify.

Private loan consolidation requires a lender's approval. Prospective lenders will evaluate your eligibility and offer you a new loan with terms based on factors like your credit history and debt-to-income ratio.


Consolidation has its . The biggest advantage of consolidating vs. refinancing is keeping federal loan benefits. But consolidation can also be the better option in these instances:


Your already have private student loans. Most private lenders refinance federal and private loans. requires caution, as you'll lose benefits like income-driven plans and loan forgiveness programs. Private loans don't have those options, making  a no-brainer if you can get a lower rate.

You're looking to save money. Federal loan consolidation won’t lower your interest rate. You'll receive the of the rates of the loans you consolidate. Private lenders will offer you an interest rate based on your financial profile. That could decrease your monthly payments and the amount you repay overall.

You want to change the owner of the loan. There's no way to switch who's responsible for paying a federal loan. For example, you can't consolidate your undergraduate loans with PLUS loans your parents took out for you. Refinancing would let you take over those loans. It could also remove a co-signer from existing private loans.

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