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Should I consolidate or refinance my student loans?

Consolidation has different consequences depending on whether you are consolidating into federal Direct Loans or refinancing into private student loans.

Visit Department of Education’s (ED) website for the latest PSLF guidance.

There are two types of consolidation loans. The type of consolidation loans available to you depends on whether you have federal or private student loans.

Federal Direct Consolidation Loan

If you have federal student loans, you have the option to combine all or some of your federal student loans into a federal Direct Loan Consolidation . This option is only available to consolidate federal student loans, such as commercially-held Federal Family Education Loans (FFEL). You cannot consolidate private student loans into federal Direct Consolidation Loans.

Direct Loan consolidation can give you access to protections and benefits available on Direct Loans, such as Public Service Loan Forgiveness (PSLF), which can eliminate the balance of your Direct Loans after 120 qualifying payments (10 years). If you consolidate before May 1, 2023, you can also benefit from one-time increases to the number of payments that are considered qualifying for forgiveness under PSLF and Income-Driven Repayment (IDR), which provides for forgiveness of remaining loan balances after 20 or 25 years. PSLF and the enhanced payment credits are not available for commercially-held FFEL.

If you have both commercially-held Federal Family Education Loans and Direct Loans, do not consolidate them all together if you also qualify for one-time federal debt cancellation. One-time cancellation can only be applied to your existing Direct Loans if they were disbursed on or before June 30, 2022, and to consolidation loans comprised of any FFEL or Perkins loans if you applied for consolidation before September 29, 2022. You can still consolidate your commercially-held FFEL loans into a Direct Consolidation Loan while leaving your pre-existing loans alone. For more information on one-time debt cancellation and federal loan consolidation, visit Federal Student Aid .

Federal loan consolidation will not lower your interest rate. The fixed interest rate for a Direct Consolidation Loan is the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent. While consolidating your loans may slightly increase your interest rate, it will lock you into a fixed interest rate, so your new payment, if based on a standard repayment plan, won’t change over time.

You can learn more about what type of loan you have through the U.S. Department of Education’s Federal Student Aid website. Through this website you can access information about your federal student loans.

Private refinancing

A private consolidation loan or refinancing a student loan allows you to combine all or some of your student loans, private and federal student loans, into one larger private consolidation loan through a private lender or bank.

If you are approved to refinance or consolidate your existing private student loans into a new private loan, the terms of the consolidation loan might allow you to lower your interest rate, lower your monthly payment by extending the length of the repayment term (which would increase the total loan cost), or release a co-signer from your existing student loan—depending on the terms of the consolidation loan. It is important to evaluate the terms of a potential private refinance loan carefully before making your decision.

Consolidating federal student loans into a private consolidation loan has risks, as you will lose access to all of the benefits and protections available on federal student loans such as Income-Driven Repayment plans, Public Service Loan Forgiveness, and the pause on payments and 0% interest rate applicable on federally-held loans.

You should weigh the benefits and risks of refinancing your federal student loan into a private student loan, because changing from a federal to a private student loan eliminates important protections and benefits.

  • Look closely if you are switching from a fixed rate loan to a variable rate loan. Interest rates for most federal loans have fixed rates, which means that you never have to worry about your interest rate and monthly payment, if based on a standard, equal-installment repayment plan, going up if interest rates rise in the future. If you switch to a private variable rate loan, your interest rate could rise above the original fixed rate, and your payment could go up.
  • You will no longer qualify for certain repayment programs or plans. Federal student loans provide options for borrowers who run into trouble, including income-driven repayment (IDR). If you consolidate with a private lender, you will lose your rights under the federal student loan program, including deferment, forbearance, cancellation, and affordable repayment options .
  • You will probably lose certain cancellation benefits if you refinance. Borrowers working in public service or as teachers in certain low-income schools may be able to get loan forgiveness for certain federal loans. If you refinance your federal loan with a new private student loan, you will no longer be eligible to participate in these federal loan forgiveness programs. You may also lose the protection of loan discharge or forgiveness in the case of death or permanent disability, which you get with federal student loans. Some but not all private lenders currently offer loan discharge benefits or forgiveness in the case of death or permanent disability.
  • Active duty servicemembers might also lose benefits on pre-service obligations if they refinance. If you are a servicemember on active duty, you are eligible for an interest rate reduction under the Servicemembers Civil Relief Act (SCRA) for all federal and private student loans taken out prior to the start of your service. If you consolidate your loans while serving in the military, you will lose the ability to qualify for this benefit.

If you have a secure job, emergency savings, strong credit, and are unlikely to benefit from forgiveness options, then refinancing federal student loans into a private student loan might be a choice worth considering.

Warning: Just remember that, under current law, once you refinance your federal loans into a private loan, you can’t turn your loans back into federal student loans or get any of the benefits of the federal student loan program. Take the time to read all of the fine print to make sure you understand what benefits your private refinancing loan offers or does not offer.