Refinancing vs Consolidating Student Loans: What you need to know to save

Published on Author Bethany Sims

Refinancing vs consolidating student loans is a decision that college graduates are making and only one option will reduce your interest rates.  Consolidation and refinancing are often used interchangeably in reference to student loans. But there are key differences you need to be aware of to decide which option is best for you.

In general, what you need to know is that consolidation is a benefit of refinancing with a private lender and that federal consolidation is a program offered by the government for federal loans only. Let’s take a closer look. 

Refinancing vs Consolidating Student Loans

Student Loan Refinancing:

Refinancing is lowering your interest rate and getting your loans on a more favorable term. Student loan refinancing is offered by private lenders and your new interest rate is determined by your financial history such as your FICO credit score. When you refinance more than one loan with a private lender, multiple loans are combined into one loan. 

The only way to lower your interest rate on your federal loans is to refinance your student loans. Federal loan providers do not check your credit when offering loans, which is a great program for those seeking education at 18, but after you graduate and your finances improve, you can often qualify for a lower rate.  

You can refinance private or federal loans and you can pick and choose which loans you want to refinance.  Refinancing is typically best for those who have launched their career and can’t benefit from the federal programs.  Purefy has created a simple calculator to help you see how much you can save by refinancing your student loans.

Refinancing vs Consolidating Student LoansBenefits of refinancing:

  • Lower your interest rate to save money over the life of the loan – we offer fixed rates starting at 3.50%* and variable rates starting at 3.10%*
  • Potentially pay off your debt faster with a new term – we offer 5, 8, 10, 12, 15 and 20 year terms through our lending partners
  • Consolidate all your loans to one simple monthly payment

Federal Consolidation:

Federal consolidation is the only true consolidation available. If you have all federal loans and you would like to get on one monthly payment, the federal government offers a consolidation program.

You will get a new rate with federal consolidation, but it is the weighted average of all your old loans you are consolidating (rounded up to the nearest one-eighth of 1%). Make sure you know what repayment plan you are on because if you consolidate, you forfeit the benefits on some federal programs and your payment plan will switch. You cannot un-consolidate once you consolidate with the federal program.

You can consolidate your student loans through the federal website at no cost. If you ever have a service trying to charge a fee to consolidate federal loans, that’s a scam. You may get a lower monthly payment by consolidating, but this can also mean you pay more in interest cost over the life of the loan because you have a longer term – ranging from 10 – 30 years.

Benefits of consolidation:

  • One simple monthly payment for all your loans

Refinancing vs Consolidating Student LoansConsolidation when Refinancing with Purefy:

Consolidating comes automatically with refinancing.  By refinancing your student loans with Purefy, you will get all your loans on one plan so you don’t have a separate monthly payment for each loan. Consolidating with a private lender through Purefy is really just a benefit of refinancing, not a separate option.

We hope this has cleared up the difference of Refinancing vs Consolidating Student Loans. Now that you know the difference, you can use this information to save on your student loans and make the right choice for you. If you still have questions, contact us.

We are always happy to help you take steps towards saving money on your student loan and finding the refinancing plan that works best for you.

*Subject to credit approval

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