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Student Loan Consolidation vs Refinancing [Updated 2023]

March 20, 2023

Although they sound similar, student loan consolidation and refinancing have very different benefits and qualifications. Both are forms of consolidation, but refinancing allows you to combine private and federal loans, while consolidation allows for federal only.

While either option may provide you with peace of mind, only one will save you money, while the other gives you federal benefits. This guide will break down the differences between the two so you can decide what’s right for you.

Student Loan Consolidation vs Student Loan Refinancing: Overview

Student loan consolidation allows you to combine all of your loans into one. There are consolidation options for both federal and private loans. You can consolidate federal loans into a Direct Consolidation Loan through the government. Meanwhile, you can consolidate private student loans and federal loans by refinancing.

In both instances, you’ll replace multiple payments and loan servicers with just one. This can help you stay organized and avoid missing payments.

A consolidation loan won’t have a lower interest rate, but doesn’t require a credit check. On the other hand, refinancing does require a strong credit history and stable income, but you can lower your interest rate and pay less over the lifetime of the loan.

Compare Student Loan Refinancing Offers on Credible

Student Loan Consolidation Pros and Cons

There are several advantages of consolidating your federal student loans. Apart from combining all your loans together, consolidation also allows you to keep all of the benefits that come with federal loans. This includes income-driven repayment, temporary loan relief, teacher loan forgiveness, and more.

Additionally, there are very few barriers to student loan consolidation. Your credit score isn’t taken into account and the application process is free.

Of course, you will only be able to consolidate federal student loans, like Federal Direct Subsidized and Unsubsidized Stafford Loans or Direct PLUS Loans. Private loans are not eligible. Federal loans only offer fixed interest rates, so you won’t be able to take advantage of a variable interest rate.

Consolidating your federal loans also doesn’t lower your interest rate or monthly payments. When you consolidate, your new loan has a weighted average of your existing federal student loans’ interest rates. As a result, your interest rate rounds up to the nearest ⅛ of 1%, slightly increasing your monthly payments.

Still, federal loans tend to have fairly low interest rates, so it still may be a better deal to consolidate than refinance, depending on your situation.

Compare Student Loan Refinancing Offers on Credible

Student Loan Refinancing Pros and Cons

Like consolidation, refinancing allows you to combine all loans into one, with one servicer and one monthly payment. However, refinancing gives you more flexibility in many areas. It allows you to combine both federal and private loans. You can pick a loan term from 5 to 20 years, choose between fixed or variable interest rates, and refinance as many times as you want.

The primary reason people refinance is to get a lower interest rate. This can lower your monthly payments and save you thousands over your loan term. It could also allow you to pay more toward your principal and pay off the loan sooner.

When refinancing, choosing a lender with the lowest interest rates will save you the most money. For example, Splash Financial is known for having lower-than-average interest rates.

To find the lowest rate, you’ll want to shop around with multiple lenders. A loan marketplace like Credible makes it easy to prequalify and review offers from multiple lenders in one place.

Still, there are some drawbacks to consider. If you choose to refinance federal loans, you’ll forfeit all the federal benefits that they come with.

You’ll also need to meet more criteria than you do with consolidation. You’ll need a stable income and a good or excellent credit score of 740 to 850. However, some lenders can work with a lower credit score. Earnest will accept credit scores as low as 650. If you can’t meet these expectations, you can try applying with a cosigner.

Compare Student Loan Refinancing Offers on Credible


Both student loan consolidation and refinancing can be helpful for organizational purposes, giving you a single monthly payment and loan servicer. However, each has unique pros and cons. In short, consolidation is best if you have federal loans and want to keep your benefits. Since it doesn’t require a credit check, it’s easy to qualify.

Refinancing is best if you want to lower your interest rate and are willing to lose your federal loan benefits. However, you’ll need a good or excellent credit score with a stable income, which might be a barrier for some people. Now that you understand both, you can make an educated decision as to which option is right for you.

Compare Student Loan Refinancing Offers on Credible


How do I know if student loan refinancing is right for me?

Determining if refinancing is right for you will depend on the type of loans that you have and your financial situation. If you have federal loans and don’t want to lose your federal loan benefits, refinancing might not be for you. If you have private loans with high interest rates, refinancing could save you money. You’ll need a good credit score and stable income to qualify. You can use Credible to compare offers from multiple lenders side by side.

How can I refinance or consolidate a student loan?

You can apply to consolidate federal student loans through the federal student aid website. You can refinance private or federal loans by getting estimates from lenders like Earnest or Splash Financial, choosing one that suits your needs, and applying. Upon approval, your new lender will pay off your old loan and you’ll begin making payments on the new loan.

Will consolidating my student loans save me money?

No. Consolidation actually slightly increases your interest rate, so you’ll likely pay a small amount more. Your new, consolidated loan gets a weighted average of your existing federal student loans’ interest rates. This rounds your interest rate up to the nearest ⅛ of 1%, slightly increasing your monthly payments.

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.