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Last update: August 14, 2024
6 minutes read
Explore the differences between loan consolidation vs refinancing to master your student debt.
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
Are you confused about student loans and whether to consolidate or refinance them? It's common, but figuring out the difference is key to managing your college debt. This post breaks down consolidation and refinancing, helping you understand what each does and when one might be better for you.
Loan consolidation combines your federal loans into one, making it easier to manage. Refinancing, on the other hand, swaps your current loans for a new one that might have a lower interest rate. Consolidation simplifies your payments but doesn't lower rates, while refinancing can save you money and adjust your loan terms.
Consolidating student loans is like organizing your money. It combines multiple federal loans into one, making it simpler with a single payment.
It's a smart move for organization, not necessarily to save money. You'll still pay the same total interest rate, but in just one payment instead of many.
Although consolidation won’t reduce your interest rate, it can still lower your monthly payments. Depending on the repayment plan you choose when consolidating, you might be able to lengthen the term of your loan, spreading out the total cost of the loan over a longer period.
Bear in mind that a lower monthly payment can still result in higher total interest charges, since you’re making those payments for a longer time. Weighing these pros and cons is key to making a smart loan consolidation decision.
Wondering when federal consolidation makes sense? Here are some situations where it’s a good idea:
If your loans are already with the government and you like the perks they offer, consolidation could be a good fit for you.
It's time for a smart move. Consider refinancing your loans with a private lender. This means combining one or more loans into a new one, possibly with a lower interest rate.
This is a good option if you have private loans or if federal benefits aren't a priority for you. Take advantage of the opportunity!
Ready to see some real savings? Refinancing could reduce what you owe:
Just remember, once you go private, you say goodbye to federal benefits like income-driven plans and loan forgiveness. So be careful.
Wondering if refinancing is right for you? Here are some clear signs:
Simply put, if you're aiming for long-term savings and don't rely on federal safety nets, refinancing could be a great option for you.
Wondering how to decide between the two options? It's pretty straightforward:
If you're unsure about losing your federal benefits, stick with consolidation. But if you're ready to save money and have your own safety net, refinancing might be the way to go.
And if student loans are confusing you, check out our guide on how to consolidate and refinance your student loans for more details. At TuitionHero, we're all about making complex things easy to understand.
Before you choose between loan consolidation and refinancing, it's important to know what to do and what to watch out for. The best decision depends on understanding your financial situation and what you want in the future.
Do check if you're eligible for federal repayment plans.
Do consider refinancing if you have strong credit.
Do use consolidation to simplify federal loan payments.
Do explore lower interest rates through refinancing.
Don't overlook the benefits you may lose by refinancing.
Don't refinance federal loans if you want forgiveness.
Don't consolidate if you're close to paying off your loans.
Don't forget that refinancing requires a credit check.
When you're thinking about combining and refinancing loans, it's helpful to look at the pros and cons. This way, you can figure out what works best for your money and education plans. Think about what each option can give you and what might not be so great, so you can make a smart choice about your student loans.
At TuitionHero, we simplify college finances. We guide you through student loans, refinancing, and finding the best rates. Our advice also helps with scholarships, FAFSA, and credit card offers. Let's make financial decisions easier and more rewarding.
Consolidating your student loans by itself isn't a direct boost to your credit score, but it can lead to more consistent payments since you'll only have one monthly bill instead of several, possibly missing fewer payments. Consistency is key in maintaining a healthy credit score.
Good news – there's no fee to consolidate your federal student loans through the Federal Student Aid website. Just watch out for companies that might offer to help you consolidate for a fee. These services are usually unnecessary. If costs and navigating financial aid have you scratching your head, check out our FAFSA help at TuitionHero.
Generally, once you've consolidated your federal student loans, you can't reconsolidate them unless you're adding a new unconsolidated loan to the mix. However, you can always refinance your consolidated loan with a private lender if you find a better rate and terms. Swing by TuitionHero to explore whether refinancing after consolidation is a smart move for you.
Dealing with student loans doesn't have to be something you do alone. Whether you choose to combine or change your loan terms, the most important thing is to pick what works best for your financial situation.
If you're unsure, our team at TuitionHero is here to help and guide you—think of us as your money guide. For more tips on handling your student loans or to get started on understanding your finances better, check out the helpful resources we have for you at TuitionHero.
Brian Flaherty
Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.
Rachel Lauren
Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.
At TuitionHero, we're not just passionate about our work - we take immense pride in it. Our dedicated team of writers diligently follows strict editorial standards, ensuring that every piece of content we publish is accurate, current, and highly valuable. We don't just strive for quality; we aim for excellence.
While you're at it, here are some other college finance-related blog posts you might be interested in.
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