By Will Geiger

Will Geiger is the co-founder of Scholarships360 and has a decade of experience in college admissions and financial aid. He is a former Senior Assistant Director of Admissions at Kenyon College where he personally reviewed 10,000 admissions applications and essays. Will also managed the Kenyon College merit scholarship program and served on the financial aid appeals committee. He has also worked as an Associate Director of College Counseling at a high school in New Haven, Connecticut. Will earned his master’s in education from the University of Pennsylvania and received his undergraduate degree in history from Wake Forest University.

Updated: August 12th, 2021

If you are a student who is paying back your student loans, you should consider student loan consolidation or refinancing. 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 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.

If you have multiple federal student loans, consolidation can also simplify the repayment process. This is because 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.

Read more: How to spot student loan forgiveness scams

Next steps for consolidating or refinancing your student loans

• Decide whether option is right for you. Consolidation is a good way to lower your monthly payment and potentially qualify for alternative repayment plans. With consolidation, you will maintain the same servicer. Refinancing can also potentially lower your monthly payment, or your interest rate. With refinancing, you may lose repayment flexibility, especially if switching from federal to private.
• If you decide that consolidation is the right path for you, speak to your loan servicer. Figure out whether they offer consolidation options that fit your financial circumstances.
• If you decide that refinancing is the way to go, try looking at student loan marketplace to compare your options. Our guide to student loan marketplaces includes our picks for the best sites to compare servicers.
• Think long and hard before making any big decisions about your student loans. Make sure you understand the terms of your new agreement well before signing on. You don’t want to sign up for anything you can’t handle. This could result in you going into default.