Should You Consolidate or Refinance your Student Loans?

When it comes to student loans, there’s a lot of confusing — and conflicting — information out there. You want to make smart decisions about your loans, but sometimes the right answers aren’t obvious. For a lot of people, it’s much easier just to “set and forget” education debt. In other words, once some people start paying back their loans, they never revisit their repayment strategy and make adjustments as needed. 

Unfortunately, this approach can have costly results.

Since the topic of consolidating versus refinancing student loans tends to be a particularly confusing one, we’ll start there. What’s the difference between these two terms, and why should a borrower consider one instead of the other?  

Let’s break it down.


The act of consolidating simply means combining multiple loans together into just one loan. It’s available for both federal and private student loans, but depending on which type we’re talking about, the logistics differ.

A federal consolidation loan is only available to certain federal student loans (no private loans allowed).Through the program, you can combine eligible federal loans and receive one combined interest rate and new term (or length of loan repayment, e.g., 10 years). This option generally doesn’t save you any money because the resulting interest rate is just a weighted average of the rates on the loans that are being combined. However, it can have some benefits, including:

  • Fewer bills and payments to keep track of each month
  • Lower monthly payments (Just be aware that this is typically accomplished by lengthening payment term, which means you’ll pay more interest over the life of the loan.)

Private loan consolidation is a little different. If you consolidate multiple loans with a private lender, you still get the benefits listed above. However, the resulting interest rate is not a weighted average — it’s actually a new interest rate based on your current credit score and other financial information. 

Basically, when a private lender consolidates your loans, they are doing so via refinancing.


Most people are familiar with the idea of refinancing a mortgage, but the idea is less well known in the student loan space. Until just a few years ago, private lenders only offered refinancing for private loans. But now SoFi and a few other lenders actually allow borrowers to refinance both federal and private loans, consolidating them together in the process.

In addition to simplifying your life with a single bill, the big reason to consider refinancing is to save money. If interest rates have gone down since you first took out the loan and your credit score, income and other financial factors have improved, then you could qualify to refinance your loans at a lower interest rate. Not only can you save a significant amount of interest over the life of the loan, but you may also be able to lower your monthly payments or shorten your payment term (and finish paying off your loans faster).

It’s important to note that some federal loans offer certain benefits and protections that don’t transfer to private loans in the refinancing process. Most notably, hardship-based repayment programs like IBR and PAYE and forgiveness programs for teachers and public employees are only available through government loans. If you think you’ll need to take advantage of these programs, you’re probably better off leaving federal loans where they are. Or, you can always refinance just some of your loans.

But, if you know that these benefits don’t apply to you, or you’re just keen to start saving now, refinancing at lower rates could be a good option.

For many borrowers, it’s a no-brainer.

Dan Macklin is a member of the DailyWorth Connect program. Read more about the program here.

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