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Student Loan Refinancing and Consolidation Cheat Sheet

Part 1: What is the difference between Consolidation and Refinancing?

Part 2: The 6 Main Benefits of Refinancing Student Loans

Part 3: Which Student Loans Should You Refinance?

Part 4: How to Qualify For Student Loan Refinancing

Part 5: How to Find the Best Refinancing Options By Comparing Lenders

Part 1: What is the difference between Consolidation and Refinancing?

Consolidation is the process of combining multiple loans into one new loan.

Refinancing is the process of issuing a new loan with a new interest rate or term.

When it comes to consolidating and refinancing student loans, you have two options:

Option #1 – Consolidate Federal Student Loans Only

The U.S. Department of Education offers a Direct Consolidation Loan, which combines your federal loans into one new loan. The new interest rate is a weighted average of the interest rates of your old loans.

Pros:

  • Easy to qualify as long as you hold certain federal student loans
  • Allows for one convenient monthly payment instead of paying multiple bills
  • Gives you the option to enroll in Income-Driven Repayment Plans and qualify for Public Service Loan Forgiveness

Cons:

  • Only federal student loans are eligible
  • Since interest rates are averaged, you’ll pay roughly the same amount of interest over the lifetime
  • Income-driven repayment plans can result in more interest over repayment

Option #2 – Consolidate AND Refinance Both Private and/or Federal Student Loans

A private lender will combine both private and federal student loans into one new loan, ideally with a lower interest rate and/or a lower monthly payment.

Pros:

  • Typically saves you money during repayment by lowering your interest rate
  • May also lower your monthly payments
  • Can refinance both federal and private loans from all degree types

Cons:

  • If you choose to refinance federal loans, you’ll sacrifice some benefits including Income-driven repayment plans and Public Service Loan Forgiveness
  • Must meet certain eligibility requirements, which can it make it more difficult to qualify

Over the next 4 parts of this guide, we’ll discuss private consolidation and refinancing for a few reasons:

  1. Private student loan refinancing is often a smarter option that can help you avoid unnecessary interest and pay off student loans faster.
  2. There’s a lot to consider when refinancing student loans, but don’t worry – we’re going to guide you through the process and help you make a smart decision.

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

Consolidation vs. Refinancing Calculator

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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 2.61% APR. Check your rate in 2 minutes.

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In the next part, we’ll dive into the top reasons you’d want to refinance student loans. In the meantime, if you’d like to see how much you can save, click to visit one of our lenders below.

LenderRates (APR)Loan TypesTermsEligible DegreesEligible Loans 
2.61% - 6.74%Variable & Fixed5, 7, 10, 15, 20Undergrad & GraduatePrivate & FederalVisit SoFi
3.64% - 7.20%Variable & Fixed5, 7, 10, 15, 20Undergrad & GraduatePrivate & FederalVisit Laurel Road
2.61% - 6.74%Variable & Fixed5, 7, 10, 15, 20Undergrad & GraduatePrivate & FederalVisit CommonBond
2.52% - 7.26%Variable & Fixed5, 7, 10, 15, 20Undergrad & GraduatePrivate & FederalVisit LendKey
2.54% - 8.39%Variable & Fixed5, 10, 15, 20Undergrad & GraduatePrivate & FederalVisit Citizens
2.61% - 6.49%Variable & Fixed5 to 20Undergrad & GraduatePrivate & FederalVisit Earnest
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.

Part 2: The 6 Main Benefits of Refinancing Student Loans

In Part 1, you learned the difference between the student loan consolidation and refinancing options that are available to you.

In this part, we’re going explain the primary benefits of why you’d want to refinance and consolidate with a private lender.

Refinancing is one of the most powerful student loan repayment options available to you. You can lower monthly payments, save thousands of dollars in interest payments, and get out of debt years earlier.

Let’s take a closer look:

Benefit #1: Pay less interest

One of the primary goals of refinancing student loans is to pay less interest by obtaining a new loan with a lower interest rate.

Currently, most lenders offer loans with variable interest rates as low as 2.22% APR and fixed interest rates at 3.25% APR.

For example, borrowers who refinance with Earnest, one of our lending partners, save $17,936 1 on average.

Simply put, lower interest rates = less money you pay towards interest on your student loans.

Benefit #2: Lower your monthly payments

Are your monthly payments too high? Refinancing can help lower your payments, so you don’t have to spend an entire paycheck repaying student loans.

It’s possible to lower monthly payments by 1) lowering your interest rate and/or 2) lengthening your term.”. Keep in mind that by choosing a longer repayment term, you’ll end up paying more interest.

Benefit #3: Reduce the number of bills you pay each month

The average Student Loan Hero user has 8 different student loans across 2-3 different servicers. It can be a pain to make multiple loan payments every month or to contact multiple servicers when you have questions about or issues with your loans.

Instead, consolidating multiple loans into one new loan can make repayment easier to manage.

Benefit #4: Remove a Cosigner

If you want to remove a cosigner from your loans (or would like yourself to be removed as a cosigner), one way to accomplish this is by consolidating into a new loan. When the old loan with a cosigner is paid off by the new lender, the cosigner is no longer on the hook for the new loan.

Benefit #5: Get a New Servicer

You may also wish to switch to a student loan servicer that has better customer service than your current servicer.

Benefit #6: Transfer Parent PLUS loans

Some lenders also allow parents with Parent PLUS loans to refinance these loans into their child’s name.

Next, we’ll explain which types of loans are best for refinancing and consolidation.

Part 3: Which Student Loans Should You Refinance?

In Part 2 we reviewed the main benefits of refinancing. In this part, we’re going to dive into which student loans are best for consolidation.

While you can consolidate all of your student loans into one new loan, that doesn’t mean you should. Typically, it will make sense to refinance a few loans, but not necessarily all of them.

How do you choose? Here’s a quick rundown:

Loan types typically best for refinancing

1. Private student loans

Private loans are typically the best suited to refinance for a few reasons.

First, private loans tend to have higher interest rates when compared to federal student loans. By refinancing these, you’ll likely be able to get a better rate.

Second, if you have variable interest rate private loans, it might make sense to switch to a low fixed interest rate. A fixed rate loan decreases the risk that your interest rates might rise in the future.

Third, many private lenders have inflexible repayment options, so switching to a new lender can offer better repayment options.

2. Federal Grad and Parent PLUS loans

Federal Graduate and Parent PLUS Loans for the 2014–15 school year came with interest rates of 7.21% — ouch! Historically, these loans have had the highest interest rates among federal student loans, making them a good target for refinancing.

In addition, graduate degree holders and parents are often in a stronger financial position to refinance due to a stable income and established credit history.

3. Other federal loans

Unsubsidized Direct loans have the next highest interest rates among federal student loans. For loans issued between 2006 and 2013, the interest rate was 6.8% APR.

Refinancing rates currently start at 2.22% APR for variable rate loans and 3.25% APR for fixed rate loans. This means even if you have a loan that has an interest rate between 4% and 5%, you still might be able to save some money.

Loans you might not want to refinance

1. All loans with super lower interest rates

Many federal loans already have low interest rates. It’s possible you have subsidized federal student loans with rates as low as 3.40% APR. If so, you might not be able to get a lower interest rate.

In addition, federal student loans have flexible repayment options, like Income-Driven Repayment and certain deferment or forbearance options, that might not be available when you refinance with a private student lender.

2. Federal loans that you want forgiven

If you’re planning to have your student loans forgiven through programs like teacher student loan forgiveness, Public Service Loan Forgiveness, or Pay As You Earn, you don’t want to refinance these loans. Any federal student loans you choose to refinance will no longer be eligible for forgiveness.

Next, we’ll talk about how you can apply and increase your chances of being approved for student loan refinancing.

Part 4: How to Qualify For Student Loan Refinancing

In Part 3 we reviewed which student loans to consolidate and refinance, and which ones not to consolidate.

In Part 4, we’re going to discuss what you need to know before you apply for refinancing.

Who can refinance?

Getting approved for student loan refinancing isn’t guaranteed, just like when you apply for a new credit card. After you apply, the lender will review your financial situation to make sure you meet their eligibility requirements.

Getting approved is typically based on a blend of the following factors:

  1. Your income – Most lenders require a steady job with annual income of at least $24,000 or an employment offer.
  2. Your debt-to-income ratio – Most lenders do not disclose a range. However, we estimate lenders require a debt-to-income ratio below 45%, which is similar to most mortgage lenders.
  3. Your credit score – Most lenders require a minimum score of 680, although the minimum can be lower with a co-signer.

These aren’t strict requirements, and you don’t have to meet every single one in order to apply. Requirements vary from lender to lender, and you can often apply with a cosigner if you don’t meet the qualifications on your own.

Many borrowers apply with a few lenders to get the best possible interest rate. Keep in mind, it’s best practice to apply to multiple lenders within a 30-day window. This approach is known as “rate shopping” and won’t negatively affect your credit score according to myFico.

If your application isn’t accepted, find out why simply by asking the lender. By law, they are required to send you an “Adverse Action” notice, which should explain exactly why you weren’t approved. You can then create a plan to fix any financial or credit related problems and reapply when you’re ready.

In the final part of this crash course, we’ll take an in-depth look at student loan refinancing lending options and how to compare different lenders before you apply.

Part 5: How to Find the Best Refinancing Options By Comparing Lenders

In this final refinancing crash course, we’ll discuss how to choose a lender.

A few key things when comparing:

1. Interest rates

Interest rates vary based on the type of loan you’re looking for (fixed or variable), the length of the loan term (5-20 years), and the rate assigned to you based on your credit.

Generally, variable rate loans have lower interest rates than fixed rate loans. But the downfall of a variable rate loan is that your rate can go up or down over time. This can mean a super low interest rate today, but with the chance of the rate increasing in the future.

In comparison, fixed rate loans allow borrowers to lock in one rate over the lifetime of the loan.

As a rule of thumb, we often recommend variable rate loans, which tend to have the lowest interest rates, to folks who plan on aggressively paying off their loans (5 years). For those who plan to finish repayment over a longer period (15-20 years), it is less risky to choose a fixed rate loan even though the interest rate will likely be higher than a variable rate loan.

Also, if you’re interested in a variable rate loan, we recommend choosing a lender that has a “maximum variable interest rate cap.” Most caps on variable interest rate student loans are roughly 8-9%, which can help decrease the risk of a rising interest rate.

2. Loan Term

Most lenders offer loan terms from 5 to 20 years.

A shorter term, such as 5 years, will likely increase monthly payments. This will help you get out of debt faster than planned and also help you avoid paying additional interest.

A longer term such as 15 or 20 years will likely lower monthly payments. This will help increase your free cash-flow, so you can afford rent and groceries, build an emergency savings fund, and potentially start investing.

But remember, you’ll likely end up paying more interest over repayment by choosing a longer term.

3. Extra benefits

In addition to saving money, refinancing student loans can come with some additional benefits.

Several of our partners offer unemployment protection if you lose your job. For example, with SoFi you can request to defer payments for up to 12 months (in 3-month increments) if you become unemployed. SoFi will also help you find a new job.

Other lenders allow you to release a cosigner on your loan after a certain number of on-time payments. For example, Citizens Bank allows cosigner release from a loan after making 36 consecutive, on-time principal and interest payments.

These are just a few examples of different things to compare when shopping for student loans. You can find even more information on our student loan refinancing page.

Congrats, you made it! You just finished our Student Loan Refinancing and Consolidation Cheat Sheet.

Still have questions? Don’t hesistate to contact us here.

Best of luck with your student loans.

Interested in refinancing student loans?

Here are the top 6 lenders of 2017!
LenderRates (APR)Eligible Degrees 
Check out the testimonials and our in-depth reviews!
2.61% - 6.74%Undergrad & GraduateVisit SoFi
3.64% - 7.20%Undergrad & GraduateVisit Laurel Road
2.61% - 6.74%Undergrad & GraduateVisit CommonBond
2.52% - 7.26%Undergrad & GraduateVisit LendKey
2.54% - 8.39%Undergrad & GraduateVisit Citizens
2.61% - 6.49%Undergrad & GraduateVisit Earnest
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.