Myth: Student Loan Consolidation is the Same as Refinancing

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Just because student loan consolidation and refinancing are often mentioned together, does not mean the terms are interchangeable. In fact, the two services are quite different.

Student Loan Consolidation

Consolidate: combine a number of things into a single or more effective whole. That is exactly what student loan consolidation does. It takes multiple student loans and combines them into a single loan—that means one monthly payment, one interest rate, one set of terms.

Students can consolidate all of their federal loans together, consolidate private loans, and even consolidate federal and private in some circumstances (though it must be done through a private lender). 

Consolidation is a great option for borrowers who want an easier time of managing their student loans.

Student Loan Refinancing

Simply put, refinancing a loan means you’ll get a new interest rate and new loan terms. Refinancing is a way for students to make their loan better fit their personal situation. Borrowers could refinance and get a lower interest rate, meaning they save money long term. They could refinance for a lower monthly payment if the current amount is too high to manage. Or they could shorten their loan term by increasing monthly payments, to repay the loan sooner rather than later.

Unfortunately, federal loans cannot be refinanced by the government. Federal loans can, however, be refinanced through private lenders—though any federal benefits (such as student loan forgiveness) will be lost.

Allison Wignall

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