Student Loan Consolidation Guide

Although the terms, student loan consolidation and refinancing are often used synonymously, they aren’t quite the same. Student loan consolidation is ideal when you owe more than one lender and want to get a handle on your accounts without pulling your hair out each month. And student loan refinancing focuses on saving money by getting the lowest interest rate possible, whether you have five loans or one. 

A Closer Look at Student Loan Consolidation 

Student loan consolidation is used to merge multiple loans into a single product to simplify the management of the accounts. While you could save money if the interest rate on the new loan is substantially lower, the idea is to streamline the repayment process by only having to make a single payment each month instead of several to multiple lenders. 

The federal consolidation programs are designed to get you out of the hole in 10 years. However, some lenders may give you more or less time, particularly if you’re consolidating multiple federal private loans into one product. 

A Closer Look at Student Loan Refinancing

The primary goal of student loan refinancing is to secure the best interest rate possible so you can keep more of your hard-earned money in your pocket. And unlike student loan consolidation, you don’t need multiple loans to pull it off.

To illustrate, assume you owe $15,000 on a private student loan with an interest rate of 10.99 percent. If you find a lender that will grant you a rate of 5.99 percent and you accept the offer, the new loan proceeds will be used to pay off the old lender and your responsibility will now lie with the new lender. Furthermore, you’ll save a bundle in interest. 

Payment terms will vary on student loan refinancing products, so you could have anywhere from three to 20 years to repay what you owe. Keep in mind that the longer you stretch out the payments, the more interest you’ll pay over the life of the loan. 

Compare Your Options 

Student Loan Consolidation Student Loan Refinancing 
Number of Loans More than one loan required  Can be done with one loan
Primary Purpose To streamline the repayment process for both federal and private loans To secure the most competitive interest rate on both federal and private loans 
Repayment Term Usually for 10 years Ranges between 3 and 20 years

Federal Student Loan Consolidation

You can consolidate federal student loans through the Direct Loan Consolidation Program


Minimal barriers to entry 

When applying for student loan consolidation through the federal government, there’s no lengthy application process. So you won’t have to wait several weeks or even days to find out if you’re approved. You can apply online and find out if you’re approved right away. (If you apply by mail, a slight waiting period applies).

Even better, there’s no minimum monthly income or credit score. So even if you’re having trouble landing that dream job and your credit score is in the trenches, you could still get approved.

Lower monthly payment 

The loan term is 10 years through the Direct Loan Consolidation Program. And unless you’ve recently commenced repayment on what you borrowed to complete your studies, chances are you’ll receive a lower and more comfortable monthly payment since you’ll be restarting the clock on the loan term. 

Fixed interest rate

With a fixed interest rate, you’ll have the same monthly payment for the duration of the loan term. This makes it easier to plan for your student loan payments. And you won’t be caught off guard by a sudden hike in interest when the index rate changes and loan payments for variable interest student loan products shoot up.

No origination fees or prepayment penalties 

Some lenders charge a fee to process new loans but not the federal government. In fact, you’ll never pay loan origination fees under the Direct Loan Consolidation Program. And should you decide to pay off the loan early, prepayment penalties will not be assessed. 

Lenders are more forgiving if you make a late payment 


More interest accrued over time 

As mentioned earlier, consolidating your federal student loans under the Direct Loan Consolidation Program could make your monthly payment more affordable. But keep in mind that a lower monthly payment could also mean more interest paid over the life of the loan, so consider beefing up your payments to pay off the new loan faster. 

How to Get Started 

To get started with the Direct Loan Consolidation Program, 

  • Confirm you meet the qualification criteria. 
  • Visit and create an account if you don’t already have one. 
  • Fill out the application. You’ll be asked to provide two personal references, information about the loans you’re looking to consolidate, the month and year the grace period ends for those loans, and the loans you wish to omit from the application.

If you’d prefer to mail the application, access the printable form here and follow the instructions found on the document. 

Need additional assistance completing the application or have questions about the Direct Loan Consolidation Program? Call 1-800-557-7392. 

Private Student Loan Consolidation or Refinancing

If you’re looking to consolidate private loans or a combination of both federal and private loans, you’ll need to find a private lender. 

Reputable Private Student Loan Consolidation and Refinancing Options 

While there are several private lenders to choose from if you wish to consolidate or refinance your student loans, the most reputable options include:

Loan Type Interest Rate Loan Term  Perks  
CommonBond Private and Federal Student Loan Refinancing 3.21-7.24% APR(fixed rate)

2.14-7.21% APR

(variable rate)

4.52-6.61% APR

(hybrid rate)

5, 7, 10, 15, or 20 years (fixed and variable rate loans)

20 years (hybrid rate loans)

No loan origination fees or prepayment penalties 

Forbearance available for 24 months 

Credible Loan Search and Comparison Tool  Varies by lender Varies by lender Retrieve rates from up to 10 lenders with no impact to your credit score 
Discover Student Loans Private and Federal Student Loan Consolidation  3.99-6.99% APR (fixed rate)

4.24-7.49% APR 

(variable rate)

10 to 20 years (based on creditworthiness) No loan origination fees, prepayment penalties, or late fees

0.25% discount on interest available if you enroll in automatic payments 

Earnest Private and Federal Student Loan Refinancing  Variable rates start at 2.05% APR (if enrolled in AutoPay) 

Fixed rates start at 3.45% APR (if enrolled in AutoPay)

Varies by loan as you have the option to choose  No loan origination fee 

Loan terms are customizable

The monthly payment can be set based on your budget 

Allows you to skip a payment once annually

Education Loan Finance Private and Federal Student Loan Refinancing  Fixed rates start at 3.29% APR 5 to 20 years  No loan origination fees or prepayment penalties 

Flexible payment plans 

Laurel Road Private and Federal Student Loan Refinancing 3.50-7.02% APR (fixed rate)

2.25-6.65% APR

(variable rate)

5, 7, 10, 15, and 20 years (fixed and variable rate loans  A reward of up to $400 is available when you refer a friend 
SoFi Private and Federal Student Loan Refinancing  3.46 to 5.98% APR (fixed rate)

2.05 to 5.98%  APR (variable rate) 

5, 7, 10, 15, or 20 years (fixed and variable rate loans)  No loan origination or prepayment penalties

Free financial advice and career coaching


Streamlines repayment process

Similar to federal student loan consolidation, private student loan refinancing can streamline the repayment process. If you have more than one loan and can find a lender that will lend you enough to merge them under one umbrella, you’ll make a single loan payment each month. 

Extended repayment period 

Private student loan financing programs have loan terms ranging from 5 to 20 years. And an extended repayment period may be exactly what you need to get your head above water and comfortably handle your loan payments each month. 

Lower monthly payments 

Assuming the interest rate is lower on your new loan, you could save hundreds if not thousands over the life of the loan. To illustrate, (insert example)


More stringent qualification criteria

The qualification criteria are arguably the biggest drawback with regard to private student loan refinancing. Why so? For starters, you won’t be able to fly under the radar without a credit check as most lenders want you to have a credit score of at least 640. And they’ll also want to see a healthy debt-to-income ratio to feel confident that you can responsibly manage and handle your outstanding debt obligations. 

Select lenders also require that you earn a minimum amount on an annual basis. Furthermore, you may be required to prove that you graduated from a qualifying college or university with a Bachelor’s degree or higher. 

Loan origination fees and prepayment penalties may apply 

Although many private student refinancing lenders are generous and waive fees, not all aren’t. In fact, there are quite a few that still charge loan origination fees and will slap you with prepayment penalties should you decide to pay the loan off early. 

Forfeiture of government perks 

Planning to refinance private and federal student loans under one umbrella? Proceed with caution as you’ll lose all the perks the federal loan programs have to offer, including income-driven payment programs, forbearance, and generous grace periods. 

Variable rates 

Most private lenders allow you to choose between fixed and variable rates. While the latter may seem more enticing, it’s only a matter of time before the market index changes and rates shoot up, thus increasing your monthly payment. 

How to Get Started 

Ready to move forward with student loan refinancing through a private lender? When scoping out your options, be mindful of the following: 

  • Qualification criteria- does the lender have income or degree requirements? 
  • Credit score- what’s the minimum credit score to qualify for consideration? 
  • Interest rates- do they offer both fixed and variable rate loan options?
  • Loan terms- how much time do you have to pay the balance in full? 
  • Fees- does the lender assess loan origination fees or prepayment penalties? 

The next step is to narrow down your top three choices and use their online qualification tool to determine which lender offers the most competitive rate. Doing so will allow you to know where you stand without impacting your credit score. But when you move forward with the loan application, the lender will conduct a hard pull of your credit. 

Documentation Requirements 

During the application process, be prepared to provide the following documents: 

  • Documents to verify your identity (i.e. driver’s license or government-issued ID, U.S. passport, Social Security card)
  • Proof of address (i.e. utility bill or bank statement)
  • Income documentation (i.e. last two pay stubs)

The lender may request additional information, but this list is a rough idea of what you’ll need in most cases to get started. 

Once your loan application is approved and finalized, all you’ll need to do is read the fine print to confirm you agree with the terms and conditions and sign on the dotted line. 

The Bottom Line 

Student loan consolidation has its perks but it’s not for everyone. Before deciding how to move forward, understand the implications of consolidating federal loans, private loans, or a combination of the two. That way, you can make an informed decision that is most suitable for your finances, whether you’re seeking maximum cost-savings or a simplified repayment schedule.