Consolidating And Refinancing Student Loans – What You Should Know

Are you looking to start refinancing student loans? The average 2015 college graduate has slightly over $35,000 in student loan debt. And, if you have a law or medical degree, you may find yourself with an average of around $150,000 or $200,000 in student loan debt, respectively. That’s a lot of money! One thing I haven’t talked about…

Michelle Schroeder-Gardner

Last Updated: April 4, 2024

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Refinancing Student Loans - What You Should KnowAre you looking to start refinancing student loans? The average 2015 college graduate has slightly over $35,000 in student loan debt.

And, if you have a law or medical degree, you may find yourself with an average of around $150,000 or $200,000 in student loan debt, respectively.

That’s a lot of money!

One thing I haven’t talked about much here on Making Sense of Cents is that there are many options for paying off your debt, such as by consolidating or refinancing your student loans.

Many don’t realize that they may be able to refinance or consolidate their student loans. I personally know this because I never once thought about either back when I had student loan debt.

Before you make the leap of consolidating or refinancing student loans, though, there are many things to think about. Continue reading below to determine if either consolidating or refinancing student loans is the right decision for you.

Related: How I Paid Off $40,000 In Student Loan Debt In 7 Months

Consolidating Student Loans – Positives And Negatives

Consolidating your student loans is when you combine your student loans into one single loan.

If you have federal student loans, you may be able to do a federal loan consolidation. While federal student loan consolidation most likely won’t help you save money by combining, it may help you to better manage your loan payments. This is due to the fact that you will only have one bill each month after you consolidate (this is why it’s called “consolidation”).

Many graduates have over five different student loans to pay each month, which can cause a huge mess if you forget to pay one!

Refinancing Student Loans: Positives And Negatives

Student loan refinancing is when you apply for a new loan that is then used to pay off your other student loans.

This is usually a great option if your credit history or credit score are better than when they were when you originally took out your student loans.

By refinancing your student loans, you may qualify for better repayment terms, a lower interest rate, and more. This is great because it may help you pay off your student loans quicker.

The positives of refinancing student loans include:

Before refinancing a federal student loan, though, you will want to think about different federal benefits that you may be giving up. You may give up income-based repayment plans, loan forgiveness for those who have certain public service jobs (such as certain jobs at public schools, the military, Peace Corps, and more). By refinancing federal student loans, you are giving up any future option to these.

However, keep in mind that by refinancing student loans, you may receive lower monthly payments, lower interest rates, and more. This may help you pay off your debt a lot more quickly.

Things you should think about before you take your next step.

Before you take your next step, I wanted to recap the above so that you are clear about what your choices are.

  • If you are able to take advantage of deferment, loan forgiveness, or some other sort of federal student loan program, you may want to think twice before you refinance federal student loans.
  • Be careful with variable interest rates. While they may seem appealing at times, remember that your interest rate may fluctuate. If you currently have a variable rate, you may want to refinance into a fixed-rate and this may make refinancing a great decision for you.
  • Consolidating your student loans usually leads to increasing your loan term, which may lead to lower monthly payments. However, it can also lead to higher interest charges over the life of your loan.
  • If your credit is better than it was when you first took out your student loans, you may be able to qualify for better terms and a better interest rate by refinancing student loans. I recommend shopping around to see what you can get.

Do you have student loan debt? What’s your action plan to pay off student loans? Do you plan on refinancing your student loans?

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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Consolidating debt could definitely be a great option for some people. Like you said though, make sure to educate yourself on the opportunities you may be giving up by consolidating. Some people don’t realize until it’s too late.

  2. Melissa

    Hey Michelle, what a timely post! The fed. government just updated their REPAYE plan and, upon investigating it, I realized I could a) consolidate (more of) my loans and b) pay less in monthly payments due to my low income. Win-win!

    You mention that your interest rate when consolidating federal loans won’t decrease – so true! Some of my loans were very low (2%) while some were very high (7+%). Consolidating brought it down to roughly 6% which, while better than 7, is much worse than 2%. On the other hand, you do have to consider peace of mind in having all your loans in one place and paying them down in chunks (again, at one place).

    I’m very glad I don’t have any private loans – my fiance does, and his private loans are constantly being re-sold, and he has to sign up for payment plans all over again. It seems like a good way to lose track of your loans!

    Have a great Friday! 🙂

    1. I had one private student loan and I paid that off first. It was so stressful having it!

  3. Amy @ DebtGal

    I have $3K left in student loans, at 1.75% interest. Since the rate is so low and we have other debt, I’m in no rush to pay it off. My husband has $50K left on his school loan, and his rate is around 5.5%. That $505 monthly payment is no fun! I guess the good news is that he’s already paid down $70K of the $120K he finished college and grad school with…

    1. Good job on paying off so much!

  4. Mimi

    My boyfriend refinanced his NJ HESSA loans through SoFi in summer without a co-signer, and he had more than $35K. He is on a variable interest rate, but it is still much lower than his old interest rate through HESSA. We found SoFi after researching for many months (there are very few options for refinancing large student loans just as student loans, no mortgage), and so far, so good! I would definitely recommend looking into them, but be aware SoFi prefers those who make a substantial salary and have strong employment history. Another good option to look into also is Citizen’s Bank.

    1. Mimi

      Oh! That is a very helpful site. Definitely bookmarking! Thanks!

  5. Fervent Finance

    By the time I figured out I could consolidate some student loans, I had already paid off the ones with the 6+% interest rates, so it wasn’t really worth it for me. But I had a family member who had a bunch at some stinky interest rates who I helped consolidate and save a ton! Definitely a worthwhile thing to research if you have 5 different loans or more at 6+% interest rates.

  6. Paying down student debt can be an uphill battle when a person doesn’t have the financial means to satisfy loan obligations. A good thing about being in debt is having the ability with little or no experience to start a business on the Internet by getting your feet wet in affiliate marketing and blogging. It’ll take time before person starts to make money from the affiliate adverts on their blog but it’s worth moving forward and creating “lots and lots of content,” pressing on in faith at full strength that the money will come in when least expected. A person has to “do the transformation work and never give up,” because making money online is for anyone who believes they can succeed and will put a person in a future financial position to pay off more than just their student loans: perhaps satisfying a home mortgage note, purchasing a brand-new BMW, Ferrari, Lamborghini, or Mercedes and still have money left in their pocket after driving out the dealership with their brand-new vehicle. Bottom line? Affiliate marketing and blogging is the “transformation business marketing solution.”

    1. Do you have any student loans?

      1. Fortunately not. And blessed for not having student loans. College graduation is right around the corner, then going into the Maser’s program LORD willing after I search and discover who has some potential money to give away. 🙂

        1. Oops..meant to type “Master’s program.” 🙂

  7. tom

    I refinanced mine through DRBank. Got a 3.5% fixed rate for 5 years. The rate was the federal subsidized rate of 6.8%. Kept the same payment, but cut the length of time by 3 years.

  8. Megan

    Awesome post, Sofi is a great service! I just refinanced my 4 student loans through Earnest. I wonder if you’ve ever used Money Magnify? It’s a free and incredibly help site that compares credit cards, student loan refinancing options and tons of other financial services.

    1. Yes, I’ve heard of Magnify Money. Thanks!

  9. Jen

    Combining loan debts into one payment would definitely help keep them on track. Good points to truly think carefully before consolidating. I agree that variable rates can be tricky and seem tempting at first. Although not a student loan, my friend’s loan had a variable rate, and the bank doubled her payment in one month because a rate increase. It was insane!

  10. All of my loans are federal loans but I still have to make three different payments per month! I’ve thought about consolidating just so I can make one payment. But, I’ve started looking into the public service loan forgiveness program as I’ve been a government employee so maybe consolidating might not be the best option?

    1. I would definitely look into loan forgiveness if you think it applies to you.

  11. Alexander Vishnevsky

    Well, I think either consolidating or refinancing your student loan is up to you to decide.
    There’s another choice, however. Let’s unite and vote for the politicians who promise to make education FREE.
    What do you think about it?

    P.S. Happy Saint Nicholas Day (Eastern Time)

  12. Diana

    I have a private loan I paying $50 monthly, which is not too bad. As for my graduate and college student loans that are under one loan will take effective in November 2016.

    I’m going to focus on paying off my credit cards starting in January 2016 while distributing the leftover money to my sub-savings. I know there are two more purchases I have to make (blog coach, and gym equipment) because I know they’ll be worth it in long run and I want to focus on getting my health better so I don’t have to drive too far. I know one of the sub-savings would be student loans. So when November 2016 starts, I wouldn’t be too stressed if I can pay the monthly loan knowing that I did distribute the leftover money towards that subsaving.

    I’m really glad this article came on time to help me figure out what I should do. Now, that I have plan how to tackle it, I should be okay. 🙂

  13. My wife and I are looking into this next year. I am a big fan of low interest debt so if we can get something in the 3.5 to 4.5 range I’d be all for refinancing.

  14. Tainted Tiara

    There is one other con that I found when considering consolidating or refinancing my PLUS loans…if I die or my student dies (God forbid), the loan is forgiven. It gives me peace of mind to know that my kids won’t be stuck with all of this debt, nor will I if the unthinkable happens.

    With that being said, I do need to spend some time researching a refinance combined with a hefty life insurance policy to serve the same purpose. Has anyone done this?

  15. The Saving Nerd

    That is impressive. I wish I could pay off that much money that fast. Keep up the good work. I love your blog.

  16. Another great post Michelle! Many people don’t even know about refinancing and are missing out on thousands of dollars in savings. I’m glad other sites are trying to get the word out!