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Student Loans: Consolidation vs. Refinancing

Posted By:  |  April 29, 2016  |  0 Comment(s)

What Is Student Loan Consolidation?  

Consolidation is the process of combining multiple loans into a single loan at a fixed rate. This rate is calculated using the weighted average of the interest rates you pay on your different loans.

Most federal student loans can be consolidated; however, private education loans are not eligible.

Who is it for?  

Consolidation is primarily for individuals who have taken out multiple loans at varying interest rates, and would like to simplify their repayment process.

If you want to consolidate student loans, you must wait until after you’ve graduated college, left school, or your enrollment status is less than half-time.


Consolidation usually comes with more flexible repayment terms (sometimes up to 30 years) and lower monthly payments. You may also qualify for alternative repayment plans.

Consolidation will also prevent you from having to pay higher interest on variable-rate loans; you’re assigned one fixed rate for life.


While consolidation can provide you with a lower monthly rate over a longer period of time, you may find yourself making more payments as well as paying more in overall interest.

You might also forfeit certain borrower benefits that came with your original loans, including interest rate discounts, principle rebates, or loan cancellation benefits.

What Is Student Loan Refinancing?  

Similar to consolidation, refinancing is the process of applying for a loan under new terms, and use the money from that loan to pay off your existing loans; however, unlike consolidation, refinancing allows borrowers to seek out better interest rates/repayment terms.

Both federal and private student loans can be refinanced.

Who is it for?  

Refinancing is best for those who pay high interest rates, have steady income, and enjoy good credit.

If you want more say in the interest rate you pay, as opposed to accepting a weighted average, refinancing may be right for you.


Refinancing enjoys all the benefits of consolidation; you can also reduce the time spent paying of your loan, and have more control over the rate you pay.

With good credit and a steady income and by selecting a lower rate, you are more likely to lower the amount you pay overall.


The refinancing process can be difficult to navigate, as it’s determined by a number of factors (e.g., financial status, income, credit score, and more). There are also several student debt refinancing providers to choose from, so it’s important to do your research before selecting a company to go with.


  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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