Consolidation and refinancing are both ways to change the terms and payment amounts of your loan so that you can pay down your debt faster, manage the loans easier, or save money on interest rates. However, these are distinct strategies that can have entirely different outcomes. Learn how student loan consolidation and refinancing work below.

Student Loan Consolidation

Process and Eligibility

When you consolidate your student loan, you combine all of your federal student loans into one, a 澳洲幸运5开奖号码历史查询:direct consolidation loan. Your new 澳洲幸运5开奖号码历史查询:interest rate is the weighted average of all your loan interest rates, rounded up to the nearest one-eighth percent. These loans have repayment terms of up to 30 years, and you’ll make one payment every month until your loan is paid in full.

Consolidating won’t get you a lower interest rate, but it does make payments more manageable by giving you one monthly payment rather than several. For a lot of federal student loan programs, you may need to consolidate your loans before you can take advantage of them. For instance, if you want to qualify for 澳洲幸运5开奖号码历史查询:Public Service Loan Forgiveness (PS🤪LF), you’ll need to consolidate your loans first.

Federal vs. Private Loan Consolidation

Consolidation is only available for 澳洲幸运5开奖号码历史查询:federal student loans. Instead of consolidation, 澳洲幸运5开奖号码历史查询:private lenders typically allow you to refinance your loans.

Pros & Cons

Pros Explained

• Streamlined payments: Rather than making several student loan payments, with separate due dates and interest rates, you’ll have one monthly payment after you consolidate. In most cases, you can set up autopay so that you don’t miss payments.
• Access to federal programs: If you want to qualify for 澳洲幸运5开奖号码历史查询:income-driven repayment (IDR) plans or forgiveness options, then the first step is getting a direct consolidation loan. Since your loans stay on the federal track, you still benefit from federal protections, such as 澳洲幸运5开奖号码历史查询:deferment or forbearance.
• No credit check: While you need to complete an application, there’s no application fee or 澳洲幸运5开奖号码历史查询:credit check required to qualify for student loan consolidation. You only need to have federal student loans.

Cons Explained

• Longer terms: A direct consolidation loan has a 30-year repayment term. If you were set to repay your student loans sooner, this option could push repayment out for decades. However, there’s nothing stopping you from paying off your loans sooner than the due date.
• May lose some benefits: You may have some benefits with your lender, such as an interest rate discount, that would go away if you 澳洲幸运5开奖号码历史查询:consolidated your loan. Your new lender may offer some of the same benefits, but this isn’t guaranteed.
• Pay more in interest: Your outstanding interest gets added to your 澳洲幸运5开奖号码历史查询:principal balance and then becomes part of the original loan balance. Then you’ll pay interest on top of that new balance, causing you to pay more in interest than if you hadn’t consolidated.

Student Loan Refinancing

澳洲幸运5开奖号码历史查询:Refinancing is when you take out a new private loan to repay all of your other student loans. Refinancing can get you new repayment terms and a new interest 🥂rate, and like consolidating, it reduces your number of monthly loan payments to one.

Process and Eligibility

To refinance your federal student loans, you’ll choose a private lender first. Make sure you’re eligible based on the lender’s individual requirements, such as minimum or maximum loan amounts, 澳洲幸运5开奖号码历史查询:credit history, and/or graduation requirements. Some lenders req﷽uire you to have a degree before refinancing, while others will refinance🍷 your loans before you graduate.

Once you compare lenders and pick the one you want, you’ll complete an application. Most lenders conduct a credit check to make sure you’re responsible enough with credit to repay your loan. Most 💮give results right away, but some might have extra requirements you’ll need to meet before approval.

Federal vs. Private Loan Refinancing

Refinancing your student loan is done only through private lenders. There is no federal student loan refinancing, only consolidation. If you refinance your federal loans into a private loan, you have advantages and disadvantages to consider. 

Pros & Cons

Pros Explained

• Potentially pay debt off sooner: You could refinance your student loans and end up with shorter repayment terms than what you have now, which means you could pay off your loans sooner and, therefore, get out of debt faster.
• Lower your interest rate: If you have excellent credit, you might qualify for a lower interest rate than what your student loans currently have.
• Reduce your number of monthly payments: Refinancing is a form of consolidation. While it’s not the same as the federal version, you do get to move all your loans (whether those are federal, private, or a mix of both) into one easy payment.

Cons Explained

• Lose federal protections: If you refinance your federal student loans, that turns them into private student loans. As a result, you’ll lose any federal protections and benefits.
• Might not get better terms: If you’re refinancing federal student loans, you may not get a lower interest rate or better repayment terms than what you have right now, so you may end up paying more over the life of the loan than you would have by not refinancing.
• May not qualify: Since each lender has its own set of qualifications that vary based on how much you want to refinance and your credit history, there’s a chance you may not qualify for refinancing.

Sho♏uld I Refinance or Consolidate My Student Loan♎s?

Deciding between refinancing and consolidating depends on๊ your individual circumstances. You might want to refinance if:

• You have federal loans and want to keep your federal protections.
• You can’t find a lower interest rate than what you currently have.
• You want longer repayment terms to lower your monthly payment.
• You don’t have the credit score or history to qualify for refinancing into a private student loan.

澳洲幸运5开奖号码历史查询:You may want to consolidate if:

• You have a mix of federal and private student loans and want to simplify payments.
• You qualify for a lower interest rate than what you’re paying now.
• You don’t mind losing federal protections and benefits, if you have them.

The Bottom Line

You can change your student loans by either consolidating or refinancing them. The right move for you will depend on your personal circumstances and goals. Weigh the pros and cons of each option and understan🎃d all your alternatives before deciding how to handle your student loan debt.