Refinance Student Loan vs. Consolidate Student Loan

When it comes to saving money on your student loan payments, there are two basic options to consider: to refinance a student loan or consolidate student loans. Which options you can choose between will depend on your current situation, the types and amounts of your loans, and your credit score.

Taking these factors into consideration will determine what steps you can take to reduce your student loan bill. Which one is right for you? This article will outline both options and then help you decide what your best approach might be.

Raptor’s Picks for Best Student Loan Refi Lenders

LendersRates (APR)Learn More
earnest_logo_transVariable: 1.99%* +
Fixed: 2.98%* +
LEARN MORE ›
lendkey-logo-500px-transVariable: 2.00%* +
Fixed: 2.99%* +
LEARN MORE ›
credible-logo-blue
Compare rate offers from about 8 lenders.
Variable: 1.99%* +
Fixed: 2.92%* +
LEARN MORE ›
laurel-road-drb-logo-transVariable: 1.89%* +
Fixed: 2.80%* +
LEARN MORE ›
common-bond-logoVariable: 1.99%* +
Fixed: 2.78%* +
LEARN MORE ›
common-bond-logoFixed: 3.25%* +
LEARN MORE ›
*APR includes a 0.25% interest rate reduction for enrollment in automatic payments.

Student Loan Refinancing

In general, refinancing your student loans means that you simply take out a new loan and use the money to pay off your existing loan.

This makes sense for students who are paying high interest rates on their current loans and can refinance them to a lower rate, or students who can restructure the length of their loan to save money on interest over time (shorter loan duration) or lower their monthly payments (longer loan duration).

This approach on its own is most likely to apply if the student has already exhausted their consolidation options. Otherwise, students could be leaving a lot of savings on the table by not consolidating first.

Student Loan Consolidation

Student loan consolidation is the act of taking multiple student loans and combining them into one single loan.

This can save you money in a number of ways:

  • Your combined payment may be lower than multiple individual payments
  • You may qualify for extended financing
  • You may qualify for lower interest on the total balance

Which type of loan(s) a student has will determine their consolidation options. There are two main types, which are outlined below.

1. Federal student loan consolidation

For students with federal student loans (via Federal Student Loan), the consolidation process can be a simple one. In most cases, these loans can all be combined with simply a click of a button.

Again, this will usually be advantageous for students. Rather than making several small loan payments, students will be able to make one larger payment, which will usually be less than the sum of the smaller monthly payments. Consolidating may also qualify the student for extended financing on their student loans, as the terms are typically based on the total balance of the loan.

Through the federal loan consolidation program, your new loan will carry an interest rate equal to a weighted average of the loans you are consolidating. So, if you have $5,000 in loans at 3% interest and $5,000 at 5% interest, then your new loan would be for $10,000 at 4% interest.

2. Private student loan consolidation

Private student loan consolidation can be more tricky than federal loan consolidation, as it usually requires students to shop and compare various lenders to find the best rates and loan terms for the consolidation.

In this case, students will probably also need to pass a traditional credit check and/or may need a co-signer, or other collateral, to secure the loan.

Consolidating private student loans can usually help cut down payments drastically.

Student Loan Refinance AND Consolidation

In some cases, students can combine both of these strategies to lower their bill even more. A student would take out one new loan that they would use to pay off multiple other loans.

These refinanced loans could be a combination of federal and private loans, depending on what the student is currently paying.

How to Know Which One is Right For You

This can all feel a bit complicated and confusing, but don’t worry. There are a few simple ways to tell which choice may be right for you.

In general, which option is best will depend on your current circumstances. Here are a few things to consider when deciding the right strategy for you.

Consider student loan refinance AND consolidation if:

  • You have multiple existing loans that have not been consolidated into one (e.g., you make multiple student loan payments per month)
  • You are paying a high interest rate on some or all of those loans

Consider student loan refinance if:

  • You have already consolidated your loans to the best of your ability
  • Your credit score or history has improved and you may qualify for a lower rate on your existing loans
  • Market rates for student loans are currently lower than they were when you borrowed your previous loan

Consider federal student loan consolidation if:

  • You have multiple federal, direct student loans which have not yet been consolidated
  • You may qualify for (and want to enroll in) an extended payment program or income-based repayment program
  • This should usually be the first step as it’s a pretty painless process and can help you start saving right away

Consider private student loan consolidation if:

  • You have a combination of federal and private loans which can be consolidated
  • You can receive a lower interest rate from private lenders than you are currently paying on your private and federal loans

Tips & Resources