Is It Better to Consolidate or Refinance Student Loans?

Quick Answer

Whether to consolidate or refinance your student loans comes down to your goals for debt management. If you have federal student loans, it's generally best to opt for consolidation unless you don't anticipate needing access to federal relief programs.

A young woman in an online class from home using her laptop.

Student loan refinancing and consolidation can allow you to bundle all your loan payments into one—and, in the case of refinancing, potentially save money on interest. However, the two processes have a lot of differences.

The right one for you depends on the type of loans you have, your financial situation and your goals. Here's what to know about how student loan refinancing and consolidation compare, plus how to pick the best option for you.

What Is Student Loan Refinancing?

Student loan refinancing involves replacing one or more existing loans with a new one through a private lender. You can refinance both federal and private student loans. Lenders may offer both fixed and variable interest rates, with repayment terms ranging from five to 20 years in most cases.

Your eligibility and loan terms will depend on your credit history and financial situation. In some cases, prospective borrowers may need to apply with a cosigner to improve their odds of securing favorable terms.

Pros and Cons of Refinancing Student Loans

Student loan refinancing can come with both advantages and disadvantages. Here's what to consider for your situation.


  • You may save money. Borrowers with good credit—or who have a creditworthy cosigner—may be able to get a lower interest rate than what they're currently paying.
  • You can get more flexibility. With a wide range of repayment terms, you can choose one that fits in your budget. You can even select a shorter term and pay down your debt faster.
  • Parents can transfer debt. If you're a parent who borrowed money to help your children get through school, some refinance lenders allow you to transfer the debt to them after they graduate (as long as both parties agree).


  • You may not qualify. There's no guarantee that you'll be able to get better terms than what you have now, or even get approved at all. To get the best terms, you typically need a high credit score and income or a creditworthy cosigner.
  • You'll lose access to federal programs. If you refinance federal student loans, you'll lose access to loan forgiveness programs, income-driven repayment plans and deferment and forbearance options provided through the government. Private lenders may offer some relief options, but they're typically not as generous.
  • You'll get less flexibility after you switch. With federal student loans, you can change your repayment plan at any time. But with private loans, you'd need to refinance again if you want to adjust your payment or term.

What Is Student Loan Consolidation?

The direct loan consolidation program through the U.S. Department of Education is only available for federal student loans.

While you can't use consolidation to get a lower interest rate on all your loans, you can combine multiple monthly payments into one and, depending on your original loan program, gain access to certain benefits you didn't have before. Interest rates are fixed, and repayment terms can range from 10 to 30 years, depending on your needs. There's no credit check required.

Pros and Cons of Consolidating Student Loans

As with refinancing, there are both benefits and drawbacks when it comes to federal loan consolidation. Here's what to keep in mind.


  • You can simplify your payments. If you have loans with multiple loan servicers, consolidating your loans into a single account can make it easier to manage your payments. You can also adjust your repayment term to fit your budget.
  • You can enjoy new benefits. Borrowers with loans from the Federal Family Education Loan (FFEL) program, parent PLUS loans and other loan programs who consolidate can gain access to certain benefits that wouldn't otherwise be available, such as loan forgiveness programs and income-driven repayment plans. Additionally, people with defaulted student loans can get them out of default through consolidation.
  • You don't need to undergo a credit check. Your eligibility and new loan terms aren't dependent on your credit history, so there's no impact on your credit score. If you have federal loans, you're generally eligible for consolidation.


  • Your interest rate will be slightly higher. The federal government will take the weighted average interest rate across all of your federal student loans and round it up to the nearest one-eighth percent. If the interest rate on all your loans is the same, the best-case scenario is that the rate will stay roughly the same.
  • Your loans could wind up being more expensive. In addition to a higher interest rate, you may pay a lot more in total interest if you extend your repayment term.
  • You may lose certain benefits. Depending on the type of loans you have now, consolidating could cause you to lose access to certain perks. For example, consolidating Perkins loans would eliminate your access to Perkins loan forgiveness.

Student Loan Consolidation vs. Refinancing

Here's a quick summary of the similarities and differences between these two options for student loan borrowers:

Student Loan Refinancing vs. Consolidation
Refinancing Consolidation
Can simplify monthly payments Yes Yes
Can result in a lower monthly payment Yes Yes
Can qualify for a lower interest rate Yes No
Can result in a higher interest rate Yes Yes
Keeps access to federal loan benefits No Yes
Can pause payments in the future Yes Yes
Can still qualify for loan forgiveness No Yes
Requires a credit check Yes No

Should I Refinance or Consolidate My Student Loans?

Ultimately, the decision depends on your situation and goals. Some things to consider include:

  • The type of loans you have: If you have federal student loans, you'll lose access to federal benefits. But if you have private student loans, you don't stand to lose much by switching to a different private lender.
  • Your credit history: If you have great credit, you could qualify for better terms with refinancing. But if your credit is in poor shape, refinancing may not be an option without a cosigner. In contrast, consolidation doesn't require a credit check, making it accessible regardless of your credit score.
  • Your financial situation: If your income is high and you have good job security, you may be less concerned about losing access to federal relief programs. In this scenario, the benefits of refinancing could outweigh the drawbacks. If you're struggling financially or you're not sure about taking risks with your relief options, consolidation may be better.
  • Your eligibility for forgiveness: The federal government offers a handful of loan forgiveness programs. If you're eligible for any of them, having some or all of your student debt discharged will likely outweigh any interest savings you can earn through refinancing.
  • Your goals: As you consider your long-term financial goals, consider whether refinancing or consolidation would make it easier for you to achieve them.

Final Consideration Before You Decide

President Biden recently announced a new proposal to expand forgiveness options for federal borrowers. While there's nothing set in stone—and anything that's confirmed could be subject to legal challenges—a draft of the proposal includes potential debt relief for the following groups:

  • Borrowers with outstanding federal student loan balances that exceed what they originally borrowed
  • Borrowers with loans that first entered repayment 25 or more years ago
  • Borrowers who took out loans to attend career-training programs that created unreasonable debt loads or provided insufficient earnings for graduates
  • Borrowers who attended institutions with unacceptably high student loan default rates
  • Borrowers who are eligible for forgiveness but haven't yet applied for relief
  • Borrowers who are experiencing financial hardship that the current student loan system doesn't adequately address

So, if you're thinking about refinancing, consider holding off until there's more clarity about the future of federal student loans.

Build Credit Before You Refinance

If you end up deciding to refinance your private student loans or at least a portion of your federal student loans, it's important to make sure your credit is ready. Again, the best rates are reserved for people with high credit scores and incomes.

Check your credit score to see where it stands. If it needs some work before you apply, review your credit report to pinpoint areas you can address. That can include paying down credit card balances and taking other actions that can help improve your credit score.

This process can take time, but if it helps you score even a slightly lower interest rate, it could save you hundreds or even thousands of dollars, depending on how much you owe. As you make an effort to improve your scores, closely monitor it for changes to see how effective your actions have been.