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Student Loan Consolidation vs. Refinancing
Federal student loan consolidation and private student loan refinancing are not the same thing.
Anna Helhoski is a senior writer covering economic news and trends in consumer finance at NerdWallet. She is also an authority on student loans. She joined NerdWallet in 2014. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today. She previously covered local news in the New York metro area for the Daily Voice and New York state politics for The Legislative Gazette. She holds a bachelor's degree in journalism from Purchase College, State University of New York.
Ryan Lane Assigning Editor | Small business, student loans
Ryan Lane is an editor on NerdWallet’s small-business team. He joined NerdWallet in 2019 as a student loans writer, serving as an authority on that topic after spending more than a decade at student loan guarantor American Student Assistance. In that role, Ryan co-authored the Student Loan Ranger blog in partnership with U.S. News & World Report, as well as wrote and edited content about education financing and financial literacy for multiple online properties, e-courses and more. Ryan also previously oversaw the production of life science journals as a managing editor for publisher Cell Press. Ryan is located in Rochester, New York.
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When debating student loan consolidation vs. refinancing, either might be a good option for you — provided you understand their differences.
Consolidation is best as a strategic move. It bundles multiple federal loans into a new federal loan to let you make a single payment or qualify for government programs.
Student loan refinancing is best to save money. It replaces one or more existing federal or private loans with a new private student loan, ideally with a lower interest rate.
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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.
Federal loan consolidation is a government process. Private consolidation, or student loan refinancing, happens through private lenders.
To get a federal student loan consolidation, apply on the Federal Student Aid website. 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.
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Consolidation has its pros and cons. The biggest advantage of consolidating vs. refinancing is keeping federal loan benefits. But consolidation can also be the better option in these instances:
You're juggling multiple federal loans. If you took out federal loans for more than one year in school, you may be dealing with multiple payments, interest rates, terms and loan servicers. Federal consolidation would give you one monthly bill to manage.
You aren't eligible for a federal program. Most income-driven repayment plans and loan forgiveness programs are for federal direct loans. If you have a loan from the Federal Family Education Loan program, you can switch to a direct consolidation loan to access those options.
You want a new federal loan servicer. The government will assign a company to service your federal student loans. If you don't like the customer service it provides, you can change student loan servicers by consolidating your federal loans.
You already have private student loans. Most private lenders refinance federal and private loans. Refinancing federal loans requires caution, as you'll lose benefits like income-driven plans and loan forgiveness programs. Private loans don't have those options, making private loan consolidation 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 weighted average 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.