Should I Consolidate My Student Loans?

By Trish Sammer Updated on May 3, 2019

Do you know the difference between consolidating and refinancing your student loans? If you don’t, you’re not alone. 

The two words are often used interchangeably and, we admit, they have somewhat similar meanings. However, they can have a very different impact on your student loans. 

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Let’s talk about what these terms mean, and then discuss whether consolidation is right for you. 

Consolidation v. refinancing: what’s the difference?

If you have multiple student loans, consolidating or refinancing can allow you to go from several monthly loan payments down to one. 

When you consolidate your student loans, you join multiple monthly loan payments into a single payment. 

When you refinance, you replace your existing loan or loans with a new one. Often, refinancing allows you to get a better interest rate as well.

When consolidation is refinancing in disguise

Federal and private student loans are consolidated in different ways.

For private student loans, consolidating basically means refinancing multiple student loans into one new loan with a private lender. You’ll have one monthly payment and, as we stated above, you’ll probably be able to snag a better interest rate if your credit is good. 

Learn more about the pros and cons of private student loan consolidation.

Federal loans can also be consolidated by refinancing through a private lender, but it’s important to be aware that by doing so, you could lose some benefits that come along with federal loans. For example, you may lose access to income-based repayment plans, loan forgiveness, or forbearance and deferment options. 

However, there is another option. You can consolidate federal loans through a federal Direct Consolidation Loan and still retain the flexible payment options. A Direct Consolidation Loan does not take your credit score into account and it doesn’t lower your interest rates. However, you may still end up with a lower monthly payment.

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How federal loan consolidation works

It's important to know that federal loan consolidation with a Direct Consolidation Loan may slightly increase your interest rate. That’s because all of your loans’ interest rates will be averaged together and rounded up the nearest one-eighth percent. 

However, that slight bump might be worth the tradeoff. 

Consolidating may allow you to extend your loan term and lower your monthly payment amount. With one lower monthly payment, it will be easier to stay current on your loan. If you can manage to pay a little extra every month, you may also be able to get out of debt even earlier. 

How much could you save by consolidating your student loans?

See our Student Loan Consolidation Calculator to find out. 

Published in: Consolidate

About the Author
Trish Sammer

Trish Sammer is Nitro's managing editor. Her work has appeared in Woman’s Day, Redbook, Huffington Post, TechCrunch, and Forbes. She has also written for various corporate clients, including the tech giant SAP, The Franklin Institute, and PSE&G. When Trish isn’t busy acting as a writing ninja for other people, you can find her … well, writing about other stuff, like divorce and blended family life. She lives outside of Philadelphia with her husband, their combined brood, and the world’s laziest dog. Read more by Trish Sammer