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Should I Consolidate My Student Loans in 2022?

October 9, 2022

If you have private or federal student loans, or a combination of both, consolidating your debt allows you to manage it more easily with a single monthly payment. Both federal student loan consolidation and private student loan refinancing allow you to combine your debt, but each has benefits and drawbacks.

Student loan consolidation only applies to federal loans, while refinancing applies to both. One option gives you federal loan protections, while the other can save you thousands. This guide will help you decide which is best for you.

See Your Refinancing Rates on Credible

Federal Student Loan Consolidation

When you consolidate loan debt, you combine multiple federal loans into a new one with a single monthly payment. The loan will have a new term and fixed interest rate, which is a weighted average of the rates of your previous loans. You can only consolidate federal student loans, not private loans. This process goes through the U.S. Department of Education.

Pros:

  • Easier to manage debt with a single monthly payment
  • New loan term could mean lower monthly payments
  • No hard credit check or credit score minimums
  • You maintain federal protections, like income-driven repayment and loan forgiveness programs

Cons:

  • Weighted interest rate means a slightly higher interest rate
  • Pay more interest over time with new extended term
  • Private loans are not eligible, so you may still have multiple loan payments

Private Student Loan Refinancing

Student loan refinancing allows you to consolidate multiple federal and private student loans into a new loan with one monthly payment.

Refinancing is only available through private lenders, so you can shop around and find the lender with the best interest rate and terms. The easiest way to do this is by filling out the application form on Credible – you can compare rates from multiple lenders, and it doesn’t impact your credit score.

When you accept a student loan refinancing offer, the new lender will pay off your existing loans and you’ll begin paying toward your new loan.

Pros:

  • Consolidate multiple loans into one easier-to-manage loan
  • Get a lower interest rate
  • Save money on interest over the lifetime of the loan
  • New term and lower interest rate could mean lower monthly payments

Cons:

  • Lose federal loan protections, like loan forgiveness and interest-driven repayment
  • Must meet eligibility requirements, including minimum credit scores and income

See Your Rates on Credible

At a Glance: Federal Student Loan Consolidation vs Private Student Loan Refinancing

Benefit Federal Student Loan Consolidation Private Student Loan Refinancing
Do federal loans qualify? Yes Yes
Do private loans qualify? No Yes
Will it consolidate all of your loans into one? No, federal only Yes, both federal and private
Will your forfeit federal protections? No Yes
Will it lower your interest rate? No Yes, usually
Will it lower your monthly payment? Yes, with a longer term Yes, with a better interest rate and/or longer term
How much money will it save me? $0 Thousands over the lifetime of the loan
Are there credit minimum credit requirements? No Yes
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Should I Consolidate or Refinance my Student Loans Now?

Like the rest of the loan industry, student loan refinances currently have record low interest rates. Unfortunately, the Federal Reserve has plans to raise interest rates in March, with additional increases slotted throughout the year. Waiting to refinance until after these increases means you won’t get the lowest possible rates.

If you’re paying off multiple student loans and struggling to manage multiple payments, consolidating them can simplify your debt. Refinancing your loans now allows you to combine them into one monthly payment while also getting a better interest rate and saving money.

There’s still time to get the best interest rates before the Fed raises rates. You can easily check what rates you qualify for with no impact on your credit score if you use Credible’s 2-minute rate check.

See Your Rates on Credible

4 Steps to Get a Student Loan Refinance

1. Shop Around and Get Rate Estimates

It’s best to start by researching multiple lenders. Although they might seem alike, each lender has different features. For example, if you didn’t graduate, you’ll need to find a lender that doesn’t require a completed degree. You can compare offers from multiple lenders side by side on Credible.

Next, you’ll get rate estimates by prequalifying. This requires a soft credit pull and won’t impact your credit. Most lenders ask for basic information, such as:

  • Name
  • Address
  • Income
  • Monthly housing cost
  • Total student loan debt
  • University and degree

2. Pick a Lender and Loan Terms

As you get offers from different lenders, you’ll see fixed and variable interest rates, as well as a range of repayment terms. A variable interest rate usually provides a lower rate to start, but after a certain period, that rate can fluctuate. A fixed interest rate stays the same throughout the life of the loan.

Most people choose the lender offering the lowest interest rate. You may want to consider any other discounts, like autopay or loyalty discounts, before deciding.

3. Collect Documentation and Apply

When you’ve made a decision on your lender, you’ll complete an application. Most lenders require some documentation, including a government-issued photo ID, social security number, federal and private loan statements, and proof of income.

4. Wait for Approval and Loan Payoff

Once your application is complete, you’ll continue making your payments as usual while you wait for approval. This usually takes about 3 weeks, though it varies by each lender. When your new lender confirms approval, it will pay off your existing lender(s) and you’ll begin making payments to your new lender.

See Your Rates on Credible

The Best Lenders for Student Loan Refinancing

1. Credible

Credible’s student loan marketplace is unique because its prequalification tool provides actual rates, while other lenders and marketplaces only provide estimates. In under two minutes, you can see exactly what options you qualify for with up to 13 of the top lenders, including ELFI and PenFed. There’s no credit check and no commitment required.

You can refinance as little as $5,000, up to your total amount of qualified student loans – there’s no limit. Other lenders have higher minimums and set limits on how much you can refinance. Credible even offers a best-rate guarantee. If you find a better rate elsewhere, Credible gives you $200.

See Your Rates on Credible

2. Splash Financial

Splash Financial is a marketplace that doesn’t charge any application, origination, or prepayment fees.

Splash Financial allows you to request cosigner release after just 12 months – unlike the 24 or 36-month minimum other lenders require. If you’re struggling to qualify, you can even apply to refinance with your spouse jointly, which could get you better approval odds and lower interest rates.

See Your Rates on Splash Financial 

3. Citizens Bank

If you have an unfinished degree, Citizens Bank is one of the only lenders that doesn’t require a completed degree to qualify. Plus, it’s affordable, with the option to save up to 0.50% on your interest rate when you get autopay and loyalty discounts.

You can refinance $10,000 to $750,000, depending on your degree.

See Your Rates on Citizens Bank

The Bottom Line

Whether you have federal or private student loans, combining them can make managing your monthly payment much easier. While federal student loan consolidation only allows for federal loans, private student loan refinancing allows for both types. Only refinancing can get you a lower interest rate, while only consolidation allows you to keep your federal loan benefits.

With interest rates rising several times this year, now is the best time to refinance and save thousands over the life of your loan. You can save time and compare offers from up to 13 different lenders with Credible – no commitment or credit check required!

See Your Rates on Credible

FAQ

What are the disadvantages of consolidating your student loans?

Federal loan consolidation only applies to federal loans, so you won’t be able to combine both federal and private loans. It also does not lower your interest rate or save you money.

Does consolidating your student loans lower your interest rate?

Federal loan consolidation does not lower your interest rate. In fact, since it’s a weighted average of your existing federal loan interest rates, your new interest rate rounds up to the nearest ⅛ of 1%, slightly increasing your payments. However, you can get a lower interest rate and consolidate both private and federal loans by refinancing.

Is refinancing student loans better than consolidating?

Refinancing your student loans could be better than consolidating if you’re looking to save money. Only refinancing can offer you a lower interest rate and consolidate both federal and private loans. However, when you refinance federal loans, you lose federal loan benefits, like income-driven repayment.

If you want to just check your rates before you make up your mind, you can fill out the application form on Credible to compare offers from multiple lenders. (This doesn’t impact your credit score.)

Is this a good time to refinance my student loans?

Yes. The Fed is raising interest rates in March, which will increase interest rates in the entire loan industry, including on student loan refinancing. Interest rates are currently at record lows, so now is the best time to take advantage of them before the Fed’s increases.

Ginny Dorn
Written by
Ginny Dorn is a freelance personal finance writer. She specializes in credit card debt, personal loans, and mortgages. She graduated from Western Illinois University with a bachelor's degree in family and consumer sciences.