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More than 43 million Americans carry an average student loan debt of $39,351 each, according to EducationData.org. And if your loans come with a high interest rate, your loan balance can quickly spiral out of control.
No matter what type of student loans you have, consolidating or refinancing them could be a smart move to manage your student debt. Refinancing your private student loans could lower your monthly payment, though a longer repayment term likely means you’ll pay more interest over time. And refinancing federal student loans into a private student loan will mean losing certain federal protections.
You have multiple consolidation options, and many factors can affect which one you choose. Here’s what you need to know about student loan consolidation vs. refinancing, the pros and cons of refinancing student loans, as well as 15 of the best student loan consolidation and refinance lenders to consider.
Student loan consolidation vs. refinancing
There are two types of student loan consolidation: consolidating federal student loans through a federal Direct Consolidation Loan or refinancing private student loans to consolidate them.
While you can typically refinance federal and private loans into another private loan, you’ll lose your federal student loan protections if you choose to go this route.
How do I consolidate federal student loans?
If you’re trying to consolidate federal student loans, your only option is a federal Direct Consolidation Loan. With this loan, you can consolidate multiple federal education loans into a single loan for free — but make sure this will actually benefit you. With this type of loan, your rate will be an average of the interest rates on your existing loans, so it may or may not go down.
When you apply for a Direct Consolidation Loan, you’ll have several flexible repayment options to choose from.
- Standard Repayment Plan — Payment amounts are fixed, and the consolidation loan is repaid within 10 to 30 years.
- Graduated Repayment Plan — Repayment begins with lower payments before gradually increasing every two years.
- Extended Repayment Plan — Borrowers with student loan balances of $30,000 and above qualify for fixed or graduated payments that will repay the loan in full within 25 years.
- Pay As You Earn Repayment Plan (PAYE) — Monthly payments are 10% of discretionary income but will never be higher than the payment amount you’d pay under the 10-year Standard Repayment Plan.
- Revised Pay As You Earn Repayment Plan (REPAYE) — Monthly payments are 10% of your discretionary income and recalculate yearly based on updated income and family size.
- Income-Based Repayment Plan (IBR) — Monthly payments are 10% or 15% of your discretionary income, depending on when you took out your first loans. The outstanding loan balance can be forgiven if you don’t pay off your loan within 20 or 25 years.
- Income-Contingent Repayment Plan (ICR) — Monthly payment is either 20% of your discretionary income or the amount you’d pay on a repayment plan with a fixed payment over 12 years, whichever is less.
- Income-Sensitive Repayment Plan — The repayment term is 15 years and is determined using your annual income.
Benefits of consolidating federal student loans
- Convenience — Instead of dealing with several federal student loans with different loan servicers, you’ll only have to make one payment each month.
- Affordability — Consolidating your federal loans lowers your monthly payment by extending your loan term up to 30 years.
- Fixed rate — If your current federal student loans have variable rates, you can convert them to fixed rates with a consolidation loan.
Downsides of consolidating federal student loans
- Costly interest — Consolidation lowers payments by increasing the loan term, but making more payments means you’ll pay more in interest over time.
- Potentially higher balance — Consolidating loans doesn’t eliminate the interest on your original loan balances — it’s added to the original principal balance.
- Potential loss of benefits — If your current federal loans feature perks like an interest rate discount or principal rebates, you may lose those benefits with a consolidation loan.
When not to consolidate your federal student loans
Consolidating your federal student loans could be beneficial if you’re facing financial hardship and need relief. But consolidating doesn’t make sense for everyone. Here are some situations when it might not be a good idea to consolidate your federal student loans.
- You have federal loans but don’t qualify for a federal Direct Consolidation Loan — and will lose benefits and protections by consolidating into a private loan.
- Consolidating or refinancing gives you a higher interest rate.
- Consolidating or refinancing into a longer term will make your loan more expensive in the long run.
- Your financial situation will make it difficult to make the new loan payment.
How do I refinance private student loans?
If you have multiple private student loans, or if you’re trying to consolidate a combination of federal and private student loans, you’ll have to refinance. Unlike a Direct Consolidation Loan, which is only for federal loans, you can refinance private or federal loans, or both, with a loan from a bank or private lender.
It’s a good idea to shop around for loans so you can easily compare the interest rate, repayment periods, and terms.
Credible lets you compare student loan refi rates in minutes.
Benefits of refinancing private student loans
- Potentially lower interest rate — When you refinance, you get an entirely new interest rate, so it could be a lower rate than what you’re paying on your existing loans.
- Lower payment — By extending the length of your repayment term, you’ll likely lower your monthly payment.
- Release cosigner — Refinancing private student loans may allow you to release a cosigner from your original student loan.
Downsides of refinancing private student loans
- Loss of protections and benefits — Refinancing federal loans into a private one means you’ll lose federal benefits, like the ability to participate in income-driven repayment plans and federal loan forgiveness programs.
- Variable-rate loans — Before you sign on the dotted line, make sure the consolidation loan doesn’t feature a variable interest rate (most federal loans have a fixed interest rate) and that the new rate isn’t higher than your original rate.
- Loss of benefits for service members — If you have federal and private student loans that originated before you began military service, you’re eligible for an interest rate reduction while you’re on active duty under the Servicemembers Civil Relief Act. But if you refinance your loans during your service commitment, you won’t be eligible to receive this benefit.
15 best private student loan consolidation and refinance lenders
When searching for the best student loan consolidation and refinance lenders, it’s beneficial to shop around and compare APRs, loan terms, eligible degrees, and more. You can start by comparing details from the following 13 Credible partner lenders.
Brazos
- Loan terms (years): Five, seven, 10, 15, 20
- APRs: Fixed
- Eligible degrees: Undergraduate and graduate
- Who it might be suitable for: Borrowers with good credit (at least 720 FICO), income ($60,000+), and who are Texas residents
Citizens
- Loan terms (years): Five, seven, 10, 15, 20
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Current Citizens Bank account holders who want loyalty and autopay discounts
College Ave
- Loan terms (years): Five, seven, 10, 12, 15, 20
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Borrowers who want flexible loan terms
EdvestinU
- Loan terms (years): Five, 10, 15, 20 years
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Graduates or those who didn’t graduate and who don’t need to refinance more than $200,000
Education Loan Finance (ELFI)
- Loan terms (years): Five, seven, 10, 12, 15, 20
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Graduates with large loan balances, as ELFI doesn’t set a loan maximum for refinancing
INvestEd
- Loan terms: Five, 10, 15, 20
- APRs: Fixed, variable
- Eligible degrees: Degree not required
- Who it might be good for: Any borrower without a degree; INvestEd doesn’t require a degree to refinance student loans
ISL Education Lending
- Loan terms: Five, seven, 10, 15, 20
- APRs: Fixed
- Eligible degrees: Degree not required
- Who it might be good for: Borrowers who are still in school
Massachusetts Educational Financing Authority (MEFA)
- Loan terms: Seven, 10, 15
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Borrowers who attended a public or nonprofit university
PenFed Credit Union
- Loan terms: Five, eight, 12, 15
- APRs: Fixed
- Eligible degrees: Undergraduate or higher
- Who it might be good for: Borrowers looking to refinance student loans with a spouse or take over Parent PLUS Loans
Rhode Island Student Loan Authority (RISLA)
- Loan terms: Five, 10, 15
- APRs: Fixed
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Anyone facing financial hardship seeking income-based repayment options
SoFi
- Loan terms: Five, seven, 10, 15, 20
- APRs: Fixed, variable
- Eligible degrees: Associate degree or higher from a Title IV school
- Who it might be good for: Borrowers with excellent credit
Other student loan consolidation and refinance lenders to consider
Here are more student loan consolidation and refinance companies Credible evaluated. Keep in mind that these lenders are not offered through Credible, so you won’t be able to easily compare your rates with them on the Credible platform like you can with partner lenders.
Discover Student Loans
- Loan terms: 10, 20
- APRs: Fixed, variable
- Eligible degrees: Undergraduate and graduate
- Who it might be good for: Borrowers looking to consolidate student loans while still in school
Compare student loan refinance rates in minutes using Credible.
Methodology: How Credible evaluated lenders
Credible reviewed and validated data from various companies and loans according to 12 data points with specific weightings to determine the best student loan consolidation and refinancing lenders. Key data points include annual percentage rates, loan amounts, term lengths, repayment structure, fees, cosigner release, and more.
What are the requirements for consolidating student loans?
To consolidate student loan debt, you must meet specific requirements depending on the type of loan.
Requirements for consolidating federal student loans
- Loans must be in repayment or a grace period.
- You may not consolidate an existing consolidation loan unless you’re including an additional eligible loan. Reconsolidating an existing FFEL Consolidation Loan without including additional loans is possible under specific circumstances.
- You must make three consecutive monthly payments or agree to an eligible repayment plan to consolidate a defaulted loan.
- Consolidating a defaulted loan in collections requires the lifting of any wage garnishment order or the vacation of the judgment.
Refer to the Federal Student Aid website for more details regarding eligibility.
Requirements for refinancing private student loans
Because private student loans are similar to other types of loans, the underwriting process is also very similar. Like other loan products, qualifying for a private student loan consolidation depends on your payment history, credit score, and income. Some lenders may require you to have earned a degree from a qualifying college before they’ll approve you for a student loan consolidation.
Should I refinance my student loans?
As you’re deciding whether or not to refinance your student loans, consider how the pros and cons of a refinance might affect you.
Pros of student loan refinancing
- Payments are lower because they’re stretched out over a longer repayment term.
- Student loan debt is easier to manage when you have one payment rather than several.
- If you’re consolidating federal loans, you can choose your own loan servicer.
- Parents struggling to make payments on a Parent PLUS Loan can consolidate into a new federal loan and may be able to access an income-driven repayment plan.
Cons of student loan refinancing
- Consolidating federal or private student loans may extend your repayment term, resulting in lower monthly payments but more interest charged over time.
- Consolidating through a private lender means you forfeit many federal loan protections and benefits, including deferment, forbearance, IDR plans, and student loan forgiveness.
- You could lose perks included in your current loans, such as interest rate discounts and principal rebates.
- Consolidation of federal loans into private ones could trigger the loss of credit for any payments you’ve made for student loan forgiveness.
Other ways to manage monthly student loan payments
If you’re struggling to manage your student loan payments, here are some other options to consider.
- Deferment — Deferment is an option for federal loans that allows you to stop making loan payments or decrease the payment amount for up to three years.
- Forbearance — Like a deferment, a forbearance also stops or decreases your payment. The most significant difference is that no interest accrues when you’re in deferment, but interest does continue to accrue during a forbearance period.
- Forgiveness — Federal loans offer several forgiveness programs, including Public Service Loan Forgiveness and Teacher Loan Forgiveness. Student loan forgiveness is only available on federal loans.
- Changing your due date — When you’re unable to make a payment, ask your lender if you can change your due date. For example, if your due date is always on the first of the month, your lender may approve a new due date on the 28th. In this example, the due date change could buy you four extra weeks to come up with the payment amount.
If you’re ready to refinance your student loans, Credible lets you easily compare refi rates from lenders in minutes.
About the author: Tim Maxwell is a financial writer with over two decades of experience. Tim’s work has appeared in USA Today, Washington Post, Bankrate, LendingTree, Fox Business, Credible and more. He also publishes Incomist, a personal finance site that focuses on paying off debt by earning extra income in creative ways.
