Should You Refinance or Consolidate Your Student Loans?

By Mike Brown Updated on May 3, 2019

Refinancing and consolidation are two ways to make student loans more manageable.

Refinancing is a strategy that can help you save money, while consolidation can simplify your student loans and result in other potential benefits.

Your best option depends on your goals, financial circumstances and current student loan debt.  


What is student loan consolidation?

Consolidation is when you combine all your separate student loans and pay them off with a single new loan.

This won’t reduce your debt, but it will mean fewer bills. If you have multiple federal student loans, you can consolidate them through a federal Direct Consolidation Loan.

You can also consolidate through a private lender as part of the refinancing process—but it's important to note that if you do this, you’ll lose access to special options available for federal student loans. 

What are the advantages of consolidation?

Consolidation helps you pay back your student loans more efficiently while helping you to:

  • Avoid the risk of default by combining your federal loans through a Direct Consolidation Loan.
  • Lower your monthly payments by opting for a longer payment term. Keep in mind, this will ultimately increase the amount of interest you pay during the life of the loan.
  • Remain eligible for government programs that help manage student loan debt—including some repayment plans, deferment and forbearance, and loan forgiveness opportunities.

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What is student loan refinancing?

Refinancing allows you to pay off your current student loan or loans with a brand-new loan that generally has a lower interest rate. 

Unlike consolidation, refinancing is available only through a private lender—not the government.  

You may also be able to refinance your students loans if you've already consolidated them. 

Refinancing offers several benefits, but the biggest advantage is the opportunity to save money with a lower interest rate. If you have a lot of outstanding student debt and a high interest rate, you’re most likely to see big savings. But you’ll need a good credit score and strong income to qualify for the most competitive rates.  

What are the advantages of refinancing?

If you meet the lender’s requirements, refinancing can improve the terms of your student loan. You may be able to:   

  • Lower your interest rate, potentially saving thousands of dollars over the life of your student loan.
  • Lower your monthly student loan payment by around $200 per month. 
  • Take advantage of current low interest rates with a variable-rate loan (best for those who can pay off their loan quickly).
  • Combine multiple loans for fewer bills each month.
  • Shorten your loan term, helping you pay off your student debt faster.

Which is best for you?

Consolidation and refinancing are both useful under the right circumstances.

Some people benefit more from the convenience and access to the special programs available through a Direct Consolidation Loan from the federal government. Others may find that long-term savings through private refinancing is a better option.

Check out Student Loan Refinancing Calculator to see how much you may be able to save by refinancing. 

Published in: Refinance, Consolidate

About the Author
Mike Brown

Mike is responsible for the editorial and marketing direction of Nitro. He has a history of helping people through his educational background—first as a teacher at the Pennsylvania State University and then through 15 years of development and marketing of education programs. Read more by Mike Brown