Student Loan Refinance and Consolidation Guide

Student loan consolidation and refinancing can save a significant amount of money. Learn about the different options and if one is right for you.
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  • Refinancing or consolidating your student loan can save a significant amount of money.
  • Private lenders refinance loans and usually require a credit check and income verification.
  • Borrowers may consolidate federal student loans into a single easy-to-manage payment.
  • The federal government also offers loan forgiveness and income-based repayment plans.

If you're like most college students and graduates, you've got some debts to pay off. At present, around 45 million U.S. borrowers owe more than $1.7 trillion in student loans.

Student loan consolidation and refinancing are two popular methods for handling debt. With these methods, borrowers can combine multiple student loans into one manageable loan with a single repayment plan.

Keep reading to learn more about student loan consolidation and refinancing, including how the two differ, the pros and cons of refinancing student loans, and how to consolidate student loans.

What Is Student Loan Refinancing?

When refinancing your student loans, existing federal and/or private loans are consolidated by a private lender — this may be your current lender or a different lender — and replaced by a new, single loan.

Student loan refinancing offers borrowers a new interest rate based on their finances, potentially lower payments, and the ease of managing debt with a single company.

What Is Student Loan Consolidation?

Consolidation simply means combining multiple loans with varying interest rates and payment plans into a single loan with one payment plan and one interest rate. Technically, the refinancing discussed above is a form of consolidation in which private and/or federal loans are combined by a private lender.

In terms of student loan consolidation specifically, the U.S. Department of Education offers a Direct Consolidation Loan. With this, borrowers can combine multiple federal student loans into a single federal loan. The new interest rate is a weighted average of all interest rates on the loans being consolidated.

Unlike private loans, a Direct Consolidation Loan has fewer eligibility requirements and requires no credit check or application fee.

What Are the Pros and Cons of Refinancing Student Loans?

Like every method of financial management, student loan refinancing has both its benefits and drawbacks.


  • Simplification: Borrowers can consolidate multiple loans — both federal and private — into a single monthly payment with a private lender of their choice.
  • Lower Interest Rates: Refinancing student loans often leads to a lower interest rate, which can result in big savings over time. Borrowers can apply for their refinanced loan with a co-signer to try to lower this rate even further.


  • Strict Eligibility Requirements: Private lenders often require a high credit score and/or certain income level, which can be tricky for student borrowers to meet, especially without a co-signer.
  • No Loan Forgiveness: Combining federal loans with private loans removes any protections your federal student loans had, including federal loan forgiveness programs like Public Service Loan Forgiveness and Teacher Loan Forgiveness.
  • Less Repayment Plan Flexibility: Private lenders typically offer fewer repayment options and much less flexibility for borrowers than the federal government does, which can make it hard to pay off loans quickly.

What Are the Pros and Cons of Consolidating Student Loans?

Federal student loan consolidation offers many benefits, but it's not the best option for everyone.


  • Single Monthly Payment: By far the biggest benefit of student loan consolidation is being able to pay your federal loans with one monthly payment, eliminating the need to juggle finances and keep track of multiple contributions.
  • Switch to Fixed Interest Rate: Consolidating loans allows you to switch from variable interest rates — which often rise over time — to a single fixed interest rate that will stay the same.
  • Avoid Default: Depending on your loan terms, student loan consolidation can help you avoid default by offering lower monthly payments and extended repayment times.


  • Higher Overall Cost: Because loan consolidation typically means paying debt over a longer period of time, you'll likely end up making more monthly payments and spending more on interest than if you hadn't consolidated your loans.
  • Loss of Borrower Benefits: Student loan consolidation may result in the loss of perks such as cash rebates and interest, principal, and payment reductions.

How to Refinance Student Loans: 3-Step Guide

Refinancing your student loans is a fairly straightforward process that involves researching lenders, finding the lowest interest rates, and applying.

The following steps show you how to refinance your student loans in a matter of weeks.

Step 1: Compare Rates

A variety of private lenders refinance student loans, including banks, credit unions, and online lenders. Start the process by researching lenders and comparing their interest rates.

Most lenders prequalify borrowers by asking them to enter basic information on their websites, such as your student loan debt, income, university attended, and degree. These lenders then run a soft credit check, which does not impact your credit score.

If you qualify, lenders typically send different loan options that vary by repayment terms and interest rates.

Step 2: Choose a Lender

Choosing a lender is more than picking the one with the lowest interest rate. Lenders may offer lower interest rates for a shorter loan term, such as five years. However, these also come with a higher monthly payment.

A longer-term loan can reduce your monthly payments, but it means you'll pay more money on interest over time. If you do opt for a longer-term loan — and, therefore, have lower monthly payments — it's important to consider what you'll do with the savings. If you're able to use it toward other important financial goals, such as paying off credit card debt or starting to invest, you can come out ahead.

Lenders may also offer you fixed and variable interest rates. A variable rate fluctuates due to economic factors, while a fixed rate remains constant for the life of the loan. If you choose a long-term loan to lower your monthly payments, a fixed rate may carry less risk.

Step 3: Gather All Necessary Information and Documents

After choosing the lender that most closely aligns with your financial goals, it's time to fill out an official loan application and send in all supporting documents.

Required documents usually include the following:

  • Social Security number
  • Government-issued photo ID
  • Proof of income (W-2 form, tax returns, or pay stubs)
  • Federal and private loan statements

If you're refinancing with a co-signer, you'll also need to provide their information.

How to Consolidate Student Loans

Applying for student loan consolidation is relatively easy and usually takes less than 30 minutes. You'll need the following to complete the application process through the Federal Student Aid website:

  • Education loan records
  • Personal income information
  • Contact information for two references (if applicable)

The system pre-populates most of the loan information. The loan application includes listing the loans you want to consolidate, selecting a loan servicer, and choosing a repayment plan. The loan approval process usually takes 4-6 weeks.

Most federal student loans are eligible for consolidation, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans.

Should You Refinance or Consolidate Your Student Loans?

Whether student loan consolidation or refinancing is right for you will depend on your financial situation, current loan terms, and repayment priorities.

If saving money is your main concern, refinancing may be your best bet. Refinancing with a private lender typically results in a lower interest rate. By refinancing, borrowers with a steady income and good credit can usually pay less out of pocket over the life of their loan.

In contrast, with student loan consolidation, any outstanding interest becomes part of the principal balance on your new loan. This, combined with extended payment terms, means you can expect to contribute more money over time with federal student loan consolidation.

If you're mainly concerned about making on-time payments and avoiding default, student loan consolidation is likely a better fit for you. This is especially true if you have a fluctuating or uncertain income, bad credit, and/or multiple loans.

Student loan consolidation is also the better choice if you want to stay eligible for federal loan forgiveness programs and maintain access to income-driven repayment plans.

What If You Can't Refinance or Consolidate Your Student Loans?

While student loan refinancing and consolidation are useful tools for Americans with student loan debt, not every borrower qualifies for these options. Federal student loan consolidation is limited to those with eligible federal student loans, whereas student loan refinancing often comes with requirements that can be hard to meet.

If you have difficulty finding a private lender to refinance your loans, there are a few steps you can take. The most obvious — and often most challenging — path involves improving your credit and increasing your income. You can also get a co-signer with good credit and a high, steady income to help you qualify.

The federal government offers several options beyond student loan consolidation. For example, you might apply for a loan forgiveness program, an income-driven repayment plan, or deferment.

Remember that you can pick and choose which loans you refinance or consolidate. If you have a high-interest loan, for instance, you may choose to keep it separate.

Frequently Asked Questions About Student Loan Refinance and Consolidation

Which student loans should you refinance?

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You can refinance most private and federal student loans if you meet a lender's eligibility requirements. The one exception is Parent PLUS Loans, which most lenders will not transfer into a child's name. Refinancing can offer lower interest rates, and consolidating all loans leads to one easier-to-manage monthly payment.

On the downside, refinancing your federal student loans results in lost access to government programs. These include student loan relief programs, loan forgiveness, and income-driven repayment plans. For example, the federal government paused payments on federal student loans through May 1, 2022, with no accrued interest.

What credit score do you need to refinance student loans?

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According to Experian, one of the three main credit-reporting companies, most lenders look for a base credit score of 670. Lenders use FICO credit scores to determine creditworthiness and consider 670-739 good and 740-799 very good. Usually, higher scores correlate to lower interest rates.

Keep in mind that some lenders accept applicants with credit scores in the fair range of 580-669; however, these loans usually come with a higher interest rate. If you don't qualify for refinancing or receive high-interest rate quotes, you can apply with a co-signer. Some lenders may also remove co-signers from the loan after you make consecutive on-time payments and improve your credit.

When is the best time to consolidate or refinance student loans?

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The federal government allows students to consolidate their loans after they enter the grace period. This occurs when you graduate, drop below half-time enrollment, or leave school. Consolidated loans, however, do not carry a grace period, and monthly payments start within 60 days of disbursement.

Most private lenders refinance student loans only after the borrower graduates or leaves college. Some lenders require applicants to hold at least a bachelor's degree.

If you qualify, refinancing private student loans at a lower interest rate can save you a substantial amount of money. Also, if you possess a variable-rate loan, it's a good idea to pay attention to the economy -- mainly interest rate changes -- and refinance when interest rates are low.

DISCLAIMER: The information provided on this website does not, and is not intended to, constitute professional financial advice; instead, all information, content, and materials available on this site are for general informational purposes only. Readers of this website should contact a professional advisor before making decisions about financial issues.

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