5 Common Myths About Student Loan Consolidation

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

student loan debt consolidation
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Refinancing with Earnest

Refinancing rates from 2.57% APR. Checking your rates won’t affect your credit score.

Check out Earnest

After graduating, having several different loans spread across multiple servicers can be difficult to manage, making it harder to keep up with your payments. One option that can help is student loan debt consolidation.

A consolidation loan helps you combine all of your student loans and combine them into one, single loan. You eliminate having to keep track of multiple student loan servicers and payment due dates. Instead, you make one monthly payment to one lender (or servicer – sometimes they’re one in the same).

While consolidating student loans can be a smart way to manage your repayment, it is frequently misunderstood. Here are five of the most common misconceptions about student loan consolidation.

Myth 1: Consolidation is the same as refinancing

Many people think consolidation and refinancing are interchangeable terms, but they’re two very distinct processes.

Student loan consolidation involves combining federal loans into a Direct Consolidation Loan, which is issued through the Department of Education. The interest rate on this new loan will be a weighted average of your previous rates, plus an extra percentage.

When it comes to student loan refinancing, you can choose to refinance federal or private loans. However, refinancing is available through private lenders only.

Like consolidation, refinancing allows you to take out a new loan with new terms that pays off your existing debt. You can refinance just one loan or multiple loans, in any combination you choose. Plus, you have the ability to change your interest rate, switch from a fixed rate to a variable rate (or vice versa), and/or change the length of repayment during the refinancing process.

Many borrowers choose to refinance so they can get a lower interest rate, which in turn can help reduce monthly payments and save money on interest over time.

If you want to compare the immediate benefits of Direct Loan consolidation vs. private consolidation and refinancing for your situation, check out the calculator below:

Consolidation vs. Refinancing Calculator

Total interest paid

Monthly payment

Interest rate

Payoff date

CurrentConsolidation
Refinancing
Total amount paid
Monthly payment
Interest rate
Payoff date
Consolidating your federal student loans through the Direct Loan Consolidation program would set your new interest rate at , slightly higher than your current rate of . If you chose to remain on the standard repayment plan, you would pay and would finish paying off your loans in . If you refinanced your student loans, with a and 15 year term, you would pay and pay off your loans by .

Refinancing is the only way to lower your interest rate but you may lose some of the safeguards associated with having federal loans, so make sure you are fully educated on the decision by reading our recommended resources below:

Student loan refinancing rates as low as % APR. Check your rate in 2 minutes.

Total

Monthly

Current

$0

Current

Consolidation

$0

Consolidation

Refinancing

$0

Refinancing

$0

Myth 2: The consolidation process is the same for all loans

There is no universal approach for consolidating student loans. The process you need to follow is dependent on whether you have private or federal loans.

As mentioned above, if you have federal student loans, you need to apply for a Direct Consolidation Loan via the Federal Student Aid website. While it can make managing your payment easier, a Direct Consolidation Loan usually does not lower your interest rate, so you likely won’t save money in interest charges. Rather, the goal is to simplify the repayment process. Plus, there are some federal repayment plans that require you to consolidate your loans before enrolling.

For private loans or a mix of both federal and private loans, you need to work with a private student loan company. Your credit history, income, and other personal financial information will impact your ability to refinance and at what interest rate and terms. Each refinancing company has varying requirements and will evaluate your situation differently.

If you want to compare the immediate benefits of Direct Loan consolidation vs. refinancing for your situation, check out the calculator below:

Consolidation vs. Refinancing Calculator

Total interest paid

Monthly payment

Interest rate

Payoff date

CurrentConsolidation
Refinancing
Total amount paid
Monthly payment
Interest rate
Payoff date
Consolidating your federal student loans through the Direct Loan Consolidation program would set your new interest rate at , slightly higher than your current rate of . If you chose to remain on the standard repayment plan, you would pay and would finish paying off your loans in . If you refinanced your student loans, with a and 15 year term, you would pay and pay off your loans by .

Refinancing is the only way to lower your interest rate but you may lose some of the safeguards associated with having federal loans, so make sure you are fully educated on the decision by reading our recommended resources below:

Student loan refinancing rates as low as % APR. Check your rate in 2 minutes.

Total

Monthly

Current

$0

Current

Consolidation

$0

Consolidation

Refinancing

$0

Refinancing

$0

Myth 3: The only way to lock in an interest rate is by consolidating

For a long time, consolidating your federal loans was the only way to get a fixed interest rate for the length of your repayment. That could protect you from market fluctuations and help you save money.

However, that changed in 2006. The government passed a new bill that fixed interest rates for the life of federal loans. Even if interest rates skyrocketed after you graduated, you would continue to pay the same interest rate on your original debt. That means if you have federal loans, there’s no need to worry about consolidating to get a fixed rate; you already have one.

The exception is private loans with a variable rate. When you take out a loan, you can choose between variable and fixed rates. Variable interest rates tend to start off lower but can increase or decrease over time in response to market changes. If your interest rates have increased, or you’re concerned about rising rates, refinancing your debt to a fixed-rate loan can provide security.

Myth 4: You have to pay to consolidate your loans

There are many companies out there that will charge you a fee in return for consolidating your loans for you. However, there’s no need to pay anyone to do it; you can do it yourself for free. The application for Federal Direct Consolidation Loans can be completed online in about 30 minutes.

If you have private loans you would like to consolidate, you can do so by shopping for lenders on your own and comparing offers. Once you find terms that work for you, you can submit your application online. The best private lenders do not charge application, origination, or disbursement fees.

Myth 5: Consolidation is a good idea for all borrowers

While student loan debt consolidation can be a wise move for some, it’s not for everyone. For federal loans, a Direct Consolidation Loan can help you if you plan to apply for an income-driven repayment plan. But it can also extend your repayment term, causing you to pay back more in interest fees.

Refinancing loans can help you save money over time and help you pay off your debt faster, but it’s not a decision you should make lightly. By consolidating federal and private loans together with a company or bank, you give up federal benefits such as access to income-driven repayment plans or forbearance and deferment programs.

Consolidating and refinancing can help you take control of your debt, but you should make sure you have the financial security to handle your payments going forward.

Take out a consolidation or refinancing loan

If you have done your homework and decided that student loan debt consolidation or refinancing is for you, we can help you through the process for free.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Get real rates from up to 4 Lenders at once

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.