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Consolidation vs. Refinancing: What’s The Best Option For Your Student Loans?

Student loans: an all-too-common phrase for most college-educated Americans. While there are common misconceptions out there about the differences between student loan consolidation and refinancing, the fact remains that both options are worthy of exploring if you’re looking to better manage your repayment plan.

Most Americans can’t afford to repay student loans in full, but rest assured that there are options available to more easily manage repayments. The first step is gaining a clear understanding of the options available – which is where consolidating and refinancing come in.

But what are the differences and benefits between the two, and how do you know which one makes the most sense for you? Read on.


Consolidation is available for Federal student loans. With this option, individual loans are bundled into one new loan with a new interest rate, which is the weighted average of the old loans’ rates.

This option may not necessarily save you money in the long term, but there are still benefits to consider:

  • Consolidation typically lowers the total monthly payment by extending the lifetime of your loan, which can result in more interest paid in the long run.

  • Combining all loans into one means less payments to keep track of.

  • You can switch out your old variable rate loans for a new fixed rate loan, which could protect you from future interest rate hikes.

  • Got a student loan with a private lender? No problem. Consolidation benefits are typically the same. However, unlike Federal student loans, the interest rate is not an average of your previous loans’ rate.


Refinancing means taking out a new loan (with a new interest rate) to pay off one or more existing loans. However, this option is not available for Federal student loans.

The benefits of refinancing your private student loans range from:

  • Lowering monthly payment amounts.

  • Saving money on total interest paid over the life of the account.

  • The option to choose a variable interest rate loan, which could lead to cost-savings should rates spike in the future.

  • Shortening the term of the loan to pay it off sooner.

If you have both Federal and private loans and want to combine them, remember that Federal loan benefits, such as Public Service Loan Forgiveness and income-based repayment options, do not transfer to private lenders.


Whether you choose to consolidate or refinance your student loan depends on your specific financial goals and situation. Do your research first to find out if you qualify for lower interest rates or could capitalize on the benefits offered by Federal loans. A great resource to start with is the Department of Education’s Federal Student Aid page which includes information on student loan repayment options and what’s required to start the process. Repaying your student loans may be unavoidable for now, but they are certainly more manageable than you may realize.

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