Debt Consolidation vs. Refinancing Student Loans

Which option is right for you?

Illustration of a hand reaching out from under bank loan statements for a lifesaver
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If your student loans need a tune-up, there are several ways to simplify life and reduce your expenses. Two common options are debt consolidation and refinancing. You might need to do one or both of these, so it's good to be familiar with what they do (and don’t do) for you.

Simplify and Optimize

First, clarify the differences between consolidation and refinancing a student loan:

Loan Consolidation

Consolidation combines multiple loans into a single loan. Instead of dealing with several separate loans, monthly payments, and billing statements, you bundle everything and handle it with one payment. You could call this “simplification” instead of consolidation.

True consolidation only makes sense (and is only possible) if your student loans originally came from government programs. You can consolidate private loans by bundling multiple loans together, but the major benefits of consolidation are reserved for government loans.


Debt consolidation programs can cause confusion here. These are services offered by credit counseling agencies and similar organizations that negotiate with creditors to make payments more affordable. You only make one payment, but the payment goes to the agency, which then pays off your multiple loans for you. This is a different service from student loan consolidation.

Loan Refinancing

When you refinance, you replace a loan with a completely new loan, ideally a much better one. The goal is often to get a lower interest rate to reduce your lifetime interest costs and monthly payment. You can also consolidate your loans when refinancing, by paying off multiple loans with your new loan. Instead of the term "refinancing," think of this as “optimizing” your debt so you pay less.

Federal Loan Consolidation

When you have multiple federal student loans, you can consolidate those loans using a Direct Consolidation Loan. The interest rate you pay, as a whole, will not change—you’ll end up with a weighted rate on the resulting loan that is effectively the same rate you were paying on those loans separately. That single fixed rate will apply to all the debt you consolidate, which may or may not matter. If you had one loan with a high rate relative to other loans, it might be better to pay that off aggressively instead of adding it to your consolidation loan.

Consolidating might also allow you to change your repayment schedule. For example, you might be able to stretch out repayment over 25 years instead of a shorter period. However, a longer repayment period means you’ll pay more interest over the life of those loans. You’ll enjoy a lower monthly payment today at the expense of a higher overall cost.

What about combining federal student loans with private loans? You can do that if you use a private lender (not through a federal Direct Consolidation Loan), but you’ll want to evaluate that decision carefully. Once you move a government loan to a private lender, you lose the benefits of federal student loans. For some, those benefits aren’t helpful, but you never know what the future brings, and features such as deferment and income-based repayment might come in handy someday.

Refinancing With Private Lenders

A private loan consolidation is only an option if you refinance your debt. In the private market, lenders might be willing to compete for your loans, and you can get a good deal if you have good credit. If you have been making your payments on time for years, your credit score should be rising, granting you access to better interest rates.

Refinancing can help you simplify, but it’s really about saving money. If you can get a lower interest rate (or some other advantage), you’ll be in a better position. Again, it’s possible to stretch out your repayment over future years—every time you refinance, you start the repayment process over—but that can cost you over the long term. To see how this works, get familiar with loan amortization, which is the process of paying down loans.

When you refinance with a private lender, you’ll either end up with a fixed or variable rate loan. Make sure to understand how the rate works. If interest rates change, will your monthly payments go up someday?

Dealing With Other Debt

While you’re refinancing, you might be tempted to include other types of debt into your new loan (auto, credit card, or personal loans, for example). Although it would simplify things, this generally cannot be done with a student loan. However, there are other types of loans that can handle different types of debt.

Personal loans can be used for anything. That means you could use a personal loan to refinance your student debt, a credit card or two, and your auto loan. This only makes sense if you’re truly going to save money, though. Avoid racking up debt again once you free up those lines of credit.

Should You Consolidate or Refinance?

The best course for you will depend on what types of loans you have and what options you have access to.

If You Have Federal Student Loans

Evaluate the pros and cons, especially if you’re tempted to switch to a private student loan. Using a federal consolidation loan isn't terribly risky. But moving from federal loans to private loans is not something you can reverse—you’ll lose the benefits of those federal loans forever. For example, if you work in public service, you might have the opportunity to get federal loans forgiven after 10 years of employment. Good luck getting that deal from a private lender. Some federal student loan repayment plans might also allow you to lower your monthly payment based on your income, but private lenders are less accommodating.

Consolidating your federal loans separately (using a federal consolidation loan and handling private loans separately) gives you the simplicity of one monthly payment for your federal loans, and you’ll get a fixed rate so you always know what your payment will be.

If You Have Private Student Loans

It’s always worth shopping around to see if you can get a better deal. Look for a lower interest rate, low (or no) application and processing fees, and other terms that mean you’ll truly save money. Make a quick amortization table for each loan, including your existing loan, and go with the option that works best for you.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Student Aid. "What is Loan Consolidation?"

  2. Wells Fargo. "Student Loan Refinancing and Consolidation."

  3. FICO. "Payment History."

  4. Federal Student Aid. "Public Service Loan Forgiveness (PSLF)."

  5. Federal Student Aid. "Income-Driven Repayment Plans."

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