Student Loan Consolidation vs. Refinancing: What is the Difference?

student loan consolidation

If you have student loans, you may be considering consolidating or refinancing as one of the ways to change the cost or terms of your loan agreement.

Sometimes you’ll hear the terms “student loan consolidation” and “refinancing” used interchangeably. But these terms are not the same.

Understanding the differences between these two options is important in order for you to make the right financial decision for your student debt. As you consider your choices, keep in mind that student loan debt is not a “one size, fits all” situation.

Take the time to make the choice that is best for you!

Let’s take a closer look at student loan consolidation versus refinancing.

Student Loan Consolidation

In short, student loan consolidation is a lot like consolidating credit card debt.

You are taking multiple loans you owe on and moving them all into one. This simplifies things by allowing you to make one payment at a time (instead of multiple payments).

It also can help you lower your interest rate as well, but there is a lot to consider with this option.

Government Option

Student loan debt often takes one of two forms — federal or private. The type of debt you have governs which form of consolidation you can choose.

If you have federal loans, most of these can use some form of government program. But if your loans are private, you will have to seek another route. This is because you are unable to consolidate private loans in federal programs.

Interest Costs & Terms

One of the reasons a borrower may opt to choose consolidation is because it allows them to greatly lower their monthly loan payment. But this is often because consolidation spreads your payment out over a longer period of time.

While lower monthly payments may seem nice now, paying on your loan longer can result in higher interest costs. It also means you are paying your principal balance off later.

This payment option helps you out a bit when you are on a tight budget, but may not be what you want in the long term, as it draws out your interest payments longer.

Interest Rates

When you consolidate your loans into one, your new interest rate is determined by using a weighted average of the previous loans.

Student Loan Refinancing

The main difference between refinancing and student loan consolidation is that refinancing involves the borrower taking out a new loan with new terms — for both interest rate and term. But there is also more to consider in regard to choosing to refinance.


There are approximately 44 million borrowers who have student loan debt. According to LendEdu, one-third of those individuals pays over 7-percent interest, with some paying rates as high as 12-percent.

But LendEdu reports that only 2-percent of borrowers chose to refinance their student loans in 2016.

Federal or Private Loans

Another difference between student loan consolidation and refinancing is that with the latter you can do this for federal and private loans.

Interest Costs & Terms

The main benefit with student loan refinancing is that you are able to refinance your interest and term. Depending on factors like your credit score, income and other conditions, you may be eligible for a lower interest rate and shorter term.

These are two factors that can save you big bucks over the course of your student loan repayment!

Refinance More Than Once

But what if interest rates in the United States become more favorable over the term of your loan?

Generally speaking, you are able to refinance more than once, which gives you the freedom to look around for better offers down the road.

Making Your Decision

Deciding how to handle your student loan debt is an important part of your personal finances.

Student loan debt is estimated at $1.3 trillion in the United States and is expected to grow in the coming years. This is a staggering figure that shows the depth of the debt Americans are taking on to receive an education.

Crippling student debt can prevent you from taking on other expenses like a mortgage or an automobile loan. In order to alleviate some of the financial stress that comes with this student debt, some borrowers are considering their options.

These include deciding to refinance their debt or use student loan consolidation.

Choosing the better option for you is a very personal decision that will vary from person to person.

With student loan consolidation, think of it like when you receive an offer to consolidate multiple credit cards. For example, making three payments for three different loans can be complicated and time-consuming.

Consolidation allows you to simplify things by sending a single payment to one lender. It helps you make your monthly payment more affordable but can draw out your term.

For some borrowers, this option may benefit them in the short-term. For example, when you are making less money and seeking a way to better afford your payment. However, when you get older and earn more, you may not need the lower payment option you received with your decision to consolidate.

When you choose student loan refinancing, you give yourself the chance to do both. This means there is a way for you to lower your interest rate and loan term.

One of the main things to keep in mind is that you are free to look at other options to refinance again, even after you’ve done it once. With this sort of student loan debt market for borrowers, it can be advantageous.

By now, it should be easy to see the differences between student loan consolidation and student loan refinancing.

The decision to choose one over the other should not be taken lightly and only after careful weighing of all your options.

Do you have student loan debt and need some advice? Our website is here to help you with this common problem.

Contact us today to discuss some of your options and visit our site to find out more about different roads you can take to ease the financial burden caused by student debt!