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Student Loan Consolidation vs. Refinancing – which is right for me?

student loan refinancing vs consolidation

Student loans are a hot topic. Whether I’m working with a client one-on-one, answering Q&A in the Money Cleanse or giving a workshop, there are always questions about student loans. How can I make my payments more manageable? How can I pay them off most easily and efficiently? It’s no wonder we’re asking these questions! The average household with student loan debt has accumulated $49,042 in student loans.

In a recent survey SoFi found that 83% of their members felt like they couldn’t relax due to their student loan burden. 34% lost sleep over them, 15% sought out mental health professionals to help them deal with them and 20% were willing to take dramatic measures to rid themselves of student loans, even sacrificing a finger or toe. Yikes!

While navigating the world of student loans can feel anything but simple, we are going to share everything you need to know about your student loans (and managing them), making it as easy and pain-free as possible in our monthly student loan series.

One of the most common questions I get and something I work with many of my clients on is consolidation and refinancing. Here’s what you need to know about each and what makes the most sense for you.

Leave any questions you have in the comments below or shoot me an email at We’ll conquer the student loan monster together!



When we consolidate our student loans, we combine them into one. True consolidation (vs. refinancing) can only be done with our federal loans. We essentially take out one new loan with the government to replace our smaller, multiple loans.

Buzzword: You might hear the term Direct Loan Consolidation in place of consolidation.

Our private loans cannot be consolidated in this way – consolidation is only for our Direct or FFEL government loans.

When we consolidate our loans the interest rate does not change but we do get to choose a new repayment plan.

So why consolidate? Having one loan vs. many loans can make managing it all a lot more simple. In addition, choosing a new repayment plan, especially switching to an income-based repayment plan, can offer some relief on monthly payments.



Refinancing applies to both federal and private loans. When we refinance, we combine some or all of our loans into one larger loan with a private lender. The private lender will evaluate our credit-worthiness and offer us a new interest rate. If our overall interest rate decreases, it can be a huge money savings on our monthly payments as well as our total interest cost over the course of the loan.

You will also get to choose a repayment plan when you refinance but there are no income-based repayment plans. It’s all about the number of years – 5, 7, 10, 15, 20, etc. The longer you choose to pay off the loan, the more interest you will pay. But longer terms also mean lower monthly payments.

Choosing the right repayment plan for you is a balance, and I recommend running the numbers to see how much each costs you in total for both consolidation and refinancing options.


So which makes sense for you (PS – you can do both!)?

Consolidation. If…

  • You want to simplify your federal loans
  • You want to switch to an income-based repayment program

Refinancing. If….

  • You want to simplify your federal and private loans
  • Your loans have high interest rates / you think you could get a lower interest rate
  • You want to pay off your loans more quickly or lower your monthly payments
  • You are confident you can make your loan payments (payments will not be based on your income)  


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