Do you have multiple student loans with several different lenders or loan servicers? Are you having trouble keeping track of when your payments are due? Here’s some good news: You don’t need to pay multiple student loans every month. Instead, you can consolidate or refinance your loans into one monthly payment.
Consolidation means combining multiple student loans into one, giving you a new interest rate that’s a weighted average of your prior rates (if you use federal loan consolidation) or a new interest rate based on your financial history (if you go with private loan consolidation).
Refinancing, which only private lenders offer, refers to taking out a single new loan to pay off multiple federal or private loans (or a mix of the two). Depending on how your financial situation and credit profile has changed since you first took out your student loans, refinancing could be another option, as your new rate and term might be a better fit for your new financial situation.
Student loan consolidation or refinancing can change the interest rate you pay on your student debt. Some people who take this step are hoping for a lower rate, but the interest rate you get could vary widely, depending on whether you go with a federal consolidation or private refinancing program, the lender, and the terms you opt for.
And it depends on whether you get a fixed rate (which stays the same for the length of the loan term) or a variable rate (which may start out lower, but can jump significantly over time). A variable rate loan mirrors market fluctuations, so when interest rates are generally low, a variable rate loan may have a favorable interest rate—but when rates rise, your variable loan rate may rise, too.
Understanding the differences between consolidation versus refinancing is critical before deciding to take the plunge—especially since private refinancing means you lose your federal student loan benefits.
Federal Student Loan Consolidation
You can combine your federal student loans into one by taking out a Direct Consolidation Loan from the government.
Doing so may simplify your repayment process if you have multiple loan servicers, or make you eligible for more income-based repayment plans. In order to use a Direct Consolidation Loan , you must have at least one Direct Loan or one FFEL.
The interest rate on a Direct Consolidation Loan is fixed and is the weighted average of the rates on your existing loans. What you end up with really depends on what rates were when you took out your loans (some Direct Consolidation Loan payment plans also factor in your total education debt , including private student loans).
Using current interest rates, say you took out a Direct Subsidized Loan of $25,000 for undergrad (4.45% interest rate), a Direct Unsubsidized Loan of $50,000 for grad school (6% interest rate), and another Direct PLUS Loan of $10,000 for grad school (7% interest rate).
If you consolidated, your weighted average rate would be 5.66%. You can also use our debt navigator tool to explore your student loan refinancing options and get a sense of what might be best for your unique situation.
Private Student Loan Refinancing Rates
Refinancing your loans with a private lender could get you a lower interest rate than federal consolidation. You can refinance federal loans, private loans, or a combination of the two.
Student loan refinancing rates vary widely. Generally, current fixed rates for student loan refinancing start at around 2.47% and go up to 8.32%, while variable rates are as low as 2.56% and as high as 8.46%. The rate you get typically depends on your total financial picture and credit history, including your credit score, income, and employment history.
If you are interested in refinancing but your credit history isn’t where you want it to be, you may consider bringing a cosigner on board to potentially qualify for a better rate. You may also get a lower rate if you sign up for a shorter student loan repayment period, too.
Why Interest Rates Aren’t the Only Thing to Consider
Interest rates aren’t the only thing to consider when deciding whether to consolidate or refinance. If you go with a Direct Consolidation Loan, keep in mind that you might pay more overall for your loans, since this usually lengthens your repayment term. You will also lose credit toward loan forgiveness for any payments made on an income-based repayment plan or the Public Service Loan Forgiveness program.
If you refinance with a private lender, you also won’t be eligible for student loan forgiveness, because you lose federal loan protections, including deferment or forbearance when you refinancing with a private lender. But some private lenders, like SoFi, offer their own benefits, like a temporary pause on payments if you lose your job through no fault of your own.
That’s why it’s important to think carefully before consolidating or refinancing your student loans. Consider things like whether a prospective private lender offers any options for relief if you hit a rough patch.
Even if you get a lower interest rate, make sure you can afford the new monthly payments before committing. And remember that this information is just a starting point for your decision. Don’t be afraid of doing more research and trusting you’ll make the right decision for you.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit..
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.