Refinancing Student Loans: What You Need to Know

At times, student debt can be a lot to bear. As your circumstances change, you may find that seeking relief or some other repayment strategy is necessary. If you are interested in refinancing your student loans, it is important to have the details.

What Is Direct Loan Consolidation Versus Loan Refinancing?

Direct Loan Consolidation Loan Refinancing
  • Direct loan consolidation is a government program that allows you to combine multiple federal education loans into a single loan.
  • The resulting interest rate is a weighted average of your prior loan rates.
  • The result is a single monthly payment instead of multiple payments.
  • Once your loans are combined into a direct consolidation loan, they cannot be removed. The loans that were consolidated are paid off and no longer exist.
  • Loan consolidation can give you access to additional loan repayment plans and forgiveness programs.
  • Loan refinancing is when private lenders consolidate and refinance your federal and private student loans.
  • Through private student loan consolidation, you will receive a new interest rate based on your current financial status.
  • If you have good credit and a strong financial forecast, you could get a lower interest rate.

Should I consolidate or refinance my loans?

The answer depends on your individual circumstances. The Federal Student Aid website offers some pros and cons to loan consolidation and refinancing.

Things To Consider:

  • Consolidation can lower your monthly payment by giving you a longer period of time (up to 30 years) to repay your loans; however, you might make more payments and pay more in interest than you would if you weren't consolidating.
  • Consolidation may cause you to lose certain borrower benefits—such as interest rate discounts, principal rebates, or some loan cancellation benefits—that are associated with your current loans.
  • If you’re paying your current loans under an income-driven repayment plan, or if you’ve made qualifying payments toward Public Service Loan Forgiveness, consolidating your current loans or consolidating your loans with your spouse will cause you to lose credit for any payments made toward those programs.

If you want to lower your monthly payment amount but are concerned about the impact of loan consolidation, you might want to consider deferment or forbearance as options for short-term payment relief, or consider switching to an income-driven repayment plan.

More Resources on Loan Consolidation and Loan Refinancing:

Federal Student Aid: Loan Consolidation
More in-depth information on loan consolidations.

FinAid: Loan Consolidation Calculator
FinAid was established in 1994 as a comprehensive source of student financial aid information, advice, and tools.

Consumer Financial Protection Bureau: Should I Refinance My Student Loan?
More in-depth information on refinancing federal student loan debt.