Consolidate or Refinance

Refinancing Your Loan

Essentially, refinancing means that you will take out a new loan to pay off the existing loan(s). One you’ve refinanced the two loans will be combined into one loan with a lower monthly payment. Typically, refinancing allows you to choose better interest rates and repayment terms, but in most cases you do need to have very good credit (and a good track record when it comes to making monthly payments) in order to refinance.

You can refinance both federal and private loans, but refinancing a federal loan means that you will give up certain rights that you probably don’t want to forfeit.


When you consolidate a loan, you don’t take out a new loan. Instead, you combine various loans into a single loan. The benefit of consolidation is that it’s easier to make one single payment instead of making multiple payments for multiple loans. However, there are drawbacks to consolidation. While a payment might be lowered if you consolidate a loan, there’s a good chance that the interest rate will be much higher — this is something that you’ll want to be very careful about.

It doesn’t make any sense to consolidate a loan for sheer ease and pay higher interest rates. If you are tempted by consolidation, look at various other options before making this choice. Refinancing might be a better route to go if you can refinance your loans.

The Difficulty

The problem with lowering most monthly student loan payments is that you really need to have excellent credit in order to get a great rate. This can be problematic (and usually is), since most graduates with hefty student loans a) may not have a steady job yet b) might have missed a payment or defaulted already.