If you are a student who is paying back your student loans, student loan consolidation or refinancing can be smart moves to consider. However, you need to understand the key differences between student loan consolidation and student loan refinancing.

At a glance, these options can be good for students in the following groups:

• For students with federal student loans: Student loan consolidation allows you to combine your federal loans into one payment. This may allow borrowers to access more favorable student loan repayment plans.
• For students with private loans who want to lower their monthly payment: Student loan refinancing can allow you to qualify for a lower interest rate and lower your monthly loan payments.

Here’s some more information about both loan consolidation and refinancing to help you make the best decision regarding your student loans:

Student Loan Consolidation

If you’re a borrower looking for a way to lower your monthly loan payment, consolidation can be a good option. Loan consolidation works by combining your federal student loans into a single loan with just one monthly bill that is over a longer period of time. If you consolidate your loans that are not Direct Loans, you may be able to take advantage of other income-driven repayment plans and student loan forgiveness.

For students who have multiple federal student loans, consolidation can also simplify their repayment process as you’ll only have one monthly payment. The same goes for Parent PLUS loans which are also eligible for student loan consolidation.

Downsides of consolidation

There are a few downsides to student loan consolidation including paying more money (as the loan is extended), losing certain borrower benefits, and losing credit for years towards loan forgiveness. 

Student Loan Refinancing

Student loan refinancing is a similar process that private lenders offer for both privates student loans and federal student loans; the gist of it is that you can combine your loans into one loan that has one monthly payment. Usually you are able to refinance your loans at a lower interest rate to theoretically save money.

Downsides of refinancing

The downside is that your federal student loans that are refinanced may lose some of the benefits, including loan forgiveness. We strongly recommend that you conduct a student loan refinancing search in a refinancing marketplace as a way to shop around and compare your options.