Consolidation vs. Refinance

Student Loan Consolidation
Consolidating student loans is when you combine your direct loans into a single payment and switch from paying several loan servicers to paying just one. Consolidated student loans have new terms, such as a lower monthly payment, but also have a longer repayment period – which could mean paying more over the life of the loan. But, that’s not the only downside.

Consolidation doesn’t just combine outstanding loan balances; it also combines the weighted average interest of the individual loans into one. This means that the new interest rate will likely be on-par with the previous loans and that won’t save you any money in the long run, either. Consolidation is limited to federal student loans and can only be done through the Direct Loan Program or the Department of Education, and it doesn’t offer any interest savings.

Student Loan Refinancing
Student loan refinancing provides the option to take advantage of lower interest rates and reduce the total amount you owe over the life of the loan. The process is simple; borrowers pay off their original student loans – both federal and private – and obtain, if available, a new, lower rate loan with different repayment terms.

There are definite differences between student loan refinancing and consolidation. With consolidation, you can combine all your federal student loans, so you can focus on one payment each month. With student loan refinancing, you have the option of lowering your interest rate and repayment terms – including private student loans – reducing both monthly payment and total repayment amount. Everyone has different needs, but when it comes to saving, who doesn’t want to do that? Can student loan refinancing save you? Find out.