Refinancing vs. a Student Loan Debt Consolidation


If you paid for college with the help of student loans, you probably have obligations with multiple lenders. This can make repayment complicated and your interest rates high. There are two options for making repayment easier and less expensive: refinancing vs. a student loan debt consolidation.


While both options involve paying off your old loans in exchange for a single, larger loan with more favorable repayment terms, there are some significant differences to consider.
What are Refinancing and Debt Consolidation?
People talk about a student loan debt consolidation when they are referring to combining multiple federal student loans through the federal government, and they talk about refinancing when they are referring to combining multiple federal and private student loans through a private company.

Pros and Cons of Refinancing Your Student Loans
You can consolidate private loans with federal loans when you refinance. This can make it easier to keep your student loan debt under control. You can also get a lower interest rate, which could the total amount you repay. You could also get a longer loan term, lowering your monthly payments. The refinancing option does come with a significant con however: you’ll lose the key benefits that came with your federal student loans, such a deferment and forbearance in times of financial hardship.
Qualifying for Student Loan Refinancing
To qualify for student loan refinancing, you need to have a good credit score. You also need to have a sufficiently high income.

Pros and Cons of Student Loan Debt Consolidation
As compared to private refinancing, the biggest disadvantage of federal debt consolidation is the fact that such consolidation will not change the interest rate you are paying. Your new loan’s interest rate is going to be a weighted average of that of the student loans you consolidated.

Federal loan consolidation does allow you to extend the term of your loan, which can mean that your monthly payments become lower. This is a bit of a mixed blessing, though, because the longer term means you will pay more interest in the long run.

On the plus side though, because you keep the federal benefits that come with your loans, you will still have access to income-driven repayment plans, which can make repayment a lot easier. You will also still be able to access Public Student Loan Forgiveness with a debt consolidation loan.
Qualifying for Federal Student Loan Consolidation
All you need to qualify is having two or more federal student loans.
Which Is Right for You?
The choice of refinancing or consolidation depends upon the types of loans you have and what your financial needs are. Refinancing is probably the best way for you to go If your loans are mostly from private sources. You would probably benefit more from consolidation if you mostly have federal loans. Refinancing will probably help more if your biggest need is to lower your payments and get your loans paid off faster. You should go with consolidation if you need access to certain federal benefits such as income-driven repayment plans.