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The Difference Between Consolidating and Refinancing


Picking a student loan that meets your needs requires an understanding of some basic concepts. Student Loan Basicsempowers you with information to make informed choices to borrow for college and manage the debt after college. ​

This article explains the important differences between consolidating and refinancing student loans.

Step 1: Understand the Terms “Consolidation” and “Refinancing”

The terms “consolidation” and “refinancing” are basically the same. No matter how you say it, existing education loans are repaid with the proceeds of a new loan with a new interest rate and loan repayment term.

What’s different about them is how the term is applied:

  1. Only loans made under the federal student loan program are eligible for the federal consolidation program. As discussed below, federal loans may also be refinanced with a private lender.
  2. Private student loans are not eligible to be consolidated under the federal program but may be approved for refinancing by a private lender.
  3. To avoid confusing borrowers, private lenders no longer refer to combining outstanding education loans as a “consolidation.” Private lenders may be banks, credit unions, finance companies, state-based agencies – basically everyone else except the government. Private lenders offer “refi” loans and the federal government offers “consolidation” loans.

Step 2: Understand the Pros and Cons of Each Program

Each program has its benefits. Borrowers with federal student loans may have an opportunity to either consolidate or refinance their loans. Choosing an option that best fits your needs can help reduce the stress of student debt.

Benefits of consolidating with the federal government