How to Consolidate and Refinance Your Student Loans

Federal consolidation is a logistical move you do through the Department of Education. Refinancing is a financial move you do through a private lender.
Loans, Student Loans
Consolidate Student Loans

There are two types of student loan consolidation: federal and private. Private consolidation is often referred to as refinancing. These processes are often confused, but they’re very different. Here’s how:

  • Federal student loan consolidation is a logistical move you do through the Department of Education. You may need to consolidate to be eligible for some federal loan repayment programs, but federal consolidation won’t lower your interest rate or save you money.
  • Student loan refinancing, which is also called private student loan consolidation, is a financial move you do through a private lender. If you qualify based on factors including your credit score, you can save money by getting a lower interest rate.

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IN THIS ARTICLE

Federal student loan consolidation basics

How to consolidate federal student loans

Student loan refinancing basics

Compare student loan refinance lenders

Federal student loan consolidation basics

When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan. You’re generally eligible once you graduate, leave school or drop below half-time enrollment. Consolidating your federal loans through the Department of Education is free; steer clear of companies that charge fees to consolidate them for you.

When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next ⅛ of 1%. So, for instance: If the average comes to 6.15%, your new interest rate will be 6.25%.

Additionally, you’ll get a new loan term ranging from 10 to 30 years. Your repayment term will generally start within 60 days of when your consolidation loan is first disbursed and will be based on your total federal student loan balance, among other factors; click on the link below for more details.

Pros:

  • You can access repayment plans and forgiveness programs you wouldn’t qualify for otherwise
  • It’s one path out of default
  • It may simplify your student loan payments

Cons:

  • You’ll likely end up paying more in interest
  • Any progress you’ve made toward federal loan forgiveness will be erased
  • You could lose access to certain repayment plans and forgiveness programs

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How to consolidate federal student loans

Applying for consolidation takes most borrowers less than 30 minutes, according to the Federal Student Aid website. As part of the process, you’ll need to provide details about your existing federal student loans, and choose a federal loan servicer and repayment plan for your new consolidation loan.

You have to complete the application in a single session, so do your research before you start. When you’re ready, go to studentloans.gov, log in, and follow these steps to apply:

You can consolidate all your federal loans or just some of them. If you’re a parent with PLUS loans and you also have other federal student loans, you may want to consolidate your PLUS loans in a separate consolidation loan; consolidating them with your other federal loans will make that consolidation loan ineligible for all income-driven repayment plans except income-contingent repayment. If you have Perkins loans, think twice before consolidating them; you’ll lose access to Perkins loan cancellation if you do.
Federal loan servicers are private companies that manage federal loans for the Department of Education. You can choose one of four servicers for your new direct consolidation loan: FedLoan Servicing, Great Lakes Educational Loan Services Inc., Navient and Nelnet. If your loans are already with one of those servicers, you can stay or choose a new one.
On the standard repayment plan for direct consolidation loans, you’ll make equal monthly payments for 10 to 30 years, depending on your total federal student loan balance. Alternatively, there are six other repayment plans to choose from, including four income-driven plans. To find the best plan for you, check out Federal Student Aid’s repayment estimators before you begin the consolidation application. The tool shows you how much you’d pay per month on the various plans.

If you choose an income-driven plan, you’ll be asked to provide income information on the application by granting access to your IRS tax information. You can opt out, but you’ll have to submit a copy of your most recent federal tax return directly to your loan servicer after you finish the consolidation application.

The remainder of the application involves filling in basic personal information and providing names of two references who have known you for at least three years.

After you review, sign and submit your application, continue making payments on your existing federal loans until your application has been processed. If you have problems with or questions about any part of the application, you can call Federal Student Aid’s Loan Consolidation Information Call Center at 1-800-557-7392.

There are major benefits and drawbacks of federal consolidation; it’s important to understand both because consolidation can’t be undone.

 

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Student loan refinancing basics

Private student loan consolidation, or refinancing, means replacing multiple student loans — private, federal or a combination of the two — with a single, new, private loan. You’ll save money if your new loan has a lower interest rate.

Your financial history — including your credit score, income, job history and educational background — will dictate your new interest rate when you refinance. You typically need a credit score at least in the mid-600s to qualify, and rates range from around 2% to more than 9%.

It’s important to note that when you refinance federal loans into a private loan, you’ll lose protections specific to federal loans. Those include interest-free deferment on subsidized federal loans, and access to income-driven repayment plans and federal loan forgiveness programs.

If you’re ready to get started, compare refinance lenders to make sure you’re getting the lowest possible rate. 

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Compare student loan refinance lenders

LenderFixed APRVariable APRGet started


3.19-6.69%2.49-6.01%


3.35-8.24%2.79-8.14%


3.35-7.12%2.81-6.74%

3.35-6.39%2.57-6.19%


3.35-7.13%2.82-6.74%


3.50-7.28%2.82-6.60%

3.95-6.99%2.99-6.42%

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