Pros and Cons of Student Loan Consolidation

By Mentor Staff | Edited By Mentor Staff

Updated On January 24, 2022

Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.

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If you want to consolidate student loans, you should know that there are pros and cons of student loan consolidation. Federal student loan consolidation and private student loan consolidation both help you manage student loan repayment. However, it’s important to understand the pros and cons of student loan consolidation so you can choose which options is best for you.

Top Picks For Student Loan Refinancing

December 2022

Variable APR ?APR, or Annual Percentage Rate, is the price you pay to borrow money. Variable APR means that your interest rate can fluctuate over time, which can increase or decrease your monthly student loan payment. Typically, a variable-rate loan has a lower introductory rate than a fixed-loan rate loan. Variable APR includes a 0.25% discount when you enroll in autopay.
Fixed APR ?APR, or Annual Percentage Rate, is the price you pay to borrow money. Fixed APR means that your interest rate will always stay the same. Even if interest rates change, your interest rate or monthly payment will not. Fixed APR includes a 0.25% discount when you enroll in autopay.
APR
4.49% - 8.99%
4.49% - 8.99%
4.49% - 8.99%

View Details

on SoFi's website

Overview

Variable APR:
4.49% - 8.99%
Fixed APR:
4.49% - 8.99%
Minimum Credit Score:
650
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000 ($10,000 in CA)

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states
Hardship Deferment:
Yes
Co-signer Option:
Yes
3.99% - 8.29%
4.39% - 8.99%
3.99% - 8.99%

View Details

on Earnest's website

Overview

Variable APR:
3.99% - 8.29%
Fixed APR:
4.39% - 8.99%
Minimum Credit Score:
650
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5-20 years
Borrower Residency:
All States except NV
Hardship Deferment:
Yes
Co-signer Option:
No
3.99% - 8.29%
4.39% - 8.99%
3.99% - 8.99%

View Details

on NaviRefi's website

Overview

Variable APR:
3.99% - 8.29%
Fixed APR:
4.39% - 8.99%
Minimum Credit Score:
650
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,001 ($10,001 in CA)

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5-20 years
Borrower Residency:
All States except NV
Hardship Deferment:
Yes
Co-signer Option:
No
3.53% - 7.24%
4.48% - 7.29%
3.53% - 7.29%

View Details

on ELFI's website

Overview

Variable APR:
3.53% - 7.24%
Fixed APR:
4.48% - 7.29%
Minimum Credit Score:
680
Minimum Income:
$35,000
Fees:
None
Minimum Loan Amount:
$10,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All States
Hardship Deferment:
Yes
Co-signer Option:
Yes
2.50% - 8.65%
3.99% - 8.49%
2.50% - 8.65%

View Details

on Splash's website

Overview

Variable APR:
2.50% - 8.65%
Fixed APR:
3.99% - 8.49%
Minimum Credit Score:
640
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5 – 25 years
Borrower Residency:
All states
Hardship Deferment:
Varies
Co-signer Option:
No
5.09% - 11.67%
5.39% - 11.87%
5.09% - 11.87%

View Details

on Citizens' website

Overview

Variable APR:
5.09% - 11.67%
Fixed APR:
5.39% - 11.87%
Minimum Credit Score:
Not disclosed
Minimum Income:
$24,000
Fees:
No prepayment or origination fees
Minimum Loan Amount:
$10,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states
Hardship Deferment:
Yes
Co-signer Option:
Yes
2.50% - 6.80%
4.49% - 6.90%
2.50% - 6.90%

View Details

on Laurel Road's website

Overview

Variable APR:
2.50% - 6.80%
Fixed APR:
4.49% - 6.90%
Minimum Credit Score:
660
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All States
Hardship Deferment:
Yes
Co-signer Option:
Yes
3.27% - 6.87%
3.99% - 10.68%
3.27% - 10.68%

View Details

on LendKey's website

Overview

Variable APR:
3.27% - 6.87%
Fixed APR:
3.99% - 10.68%
Minimum Credit Score:
680
Minimum Income:
$24,000
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states, except ME, ND, NV, RI, WV
Hardship Deferment:
Yes
Co-signer Option:
Yes
-
3.94% - 9.08%
3.94% - 9.08%

View Details

on ISL's website

Overview

Variable APR:
-
Fixed APR:
3.94% - 9.08%
Minimum Credit Score:
670
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000 ($10,000 in CA)

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states, except OR and ME
Hardship Deferment:
Yes
Co-signer Option:
Yes

Here are the pros and cons of student loan consolidation:

  1. What is federal student loan consolidation?
  2. What is private student loan consolidation?
  3. Pros of federal student loan consolidation
  4. Cons of federal student loan consolidation
  5. Pros of private student loan consolidation
  6. Cons of private student loan consolidation
  7. Best lenders for student loan consolidation

What is federal student loan consolidation?

Federal student loan consolidation is the process of combining your current federal student loans into a new Direct Consolidation Loan. Federal student loan borrowers can consolidate federal student loans once they enter student loan repayment or during your grace period.

Federal student loan consolidation results in a federal student loan with a fixed interest rate. The goal of student loan consolidation is to organize your federal student loans into a single student loan with one monthly payment, one interest rate and student loan servicer.

Importantly, federal student loan consolidation will not lower your interest rate. Rather, federal student loan consolidation results in an interest rate that is equal to a weighted average of your current interest rates, rounded up to the nearest 1/8%.

This consolidation vs. refinancing calculator shows you how much money you can save with federal student loan consolidation vs. private student loan consolidation (student loan refinancing).

How to apply: You can apply for federal student loan consolidation through Federal Student Aid.

What is private student loan consolidation?

Private student loan consolidation, also known as student loan refinancing, is the process of combining your federal student loans, private student loans or both into a new private student loan with a lower interest rate.

The goal of student loan refinancing is to get a lower interest rate, save money and pay off student loans faster. With private student loan consolidation, you refinance student loans with a private lender rather than the federal government.

Compare the latest student loan refinancing rates.

Student loan refinancing enables you to choose a fixed interest rate or a variable interest rate. You can also choose a student loan repayment term ranging from 5 to 20 years, which provides more flexibility than the Standard Repayment Term.

This student loan refinancing calculator shows you how much money you can save when you refinance student loans.

Here are helpful resources for student loan refinancing:

Pros of federal student loan consolidation

There are several pros of federal student loan consolidation:

  • Organize student loans: Student loan consolidation helps you consolidate your federal student loans into a new, single federal student loan called a Direct Consolidation Loan. Federal student loan consolidation simplifies student loan repayment by providing you with a single student loan, single interest rate, single monthly student loan payment and single student loan servicer.
  • Access To Income-Driven Repayment: Federal student loan consolidation gives you access to income-driven repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) or Income-Contingent Repayment (ICR). This is especially helpful if you need to consolidate FFELP or Perkins Loans into a Direct Consolidation Loan.
  • Lower monthly payment: Federal student loan consolidation can help lower your monthly student loan payment on your federal student loans. For example, you can extend your student loan repayment term from 10 years to 30 years, which can result in a lower monthly student loan payment.

Cons of federal student loan consolidation

There are several cons of federal student loan consolidation:

  • No lower interest rate: Federal student loan consolidation does not lower your interest rate. Rather, your interest rate with Direct Loan Consolidation is equal to the weighted average of the interest rates on your current federal student loans, rounded up to the nearest 1/8%.
  • Higher total interest: With federal student loan consolidation, a longer student loan repayment period such as 30 years can reduce your monthly student loan payment. However, a lower monthly student loan payment can result in higher total interest.
  • Doesn’t include private student loans: Federal student loan consolidation is only for federal student loans. Therefore, you can’t consolidate private student loans with the federal government.

Pros of private student loan consolidation

Pros of private student loan consolidation

  • Lower interest rate: The main goal of private student loan consolidation is to lower your interest rate. If you have good to excellent credit, you can get a lower interest rate, which can save you up to thousands or tens of thousands of dollars over the life of your student loans.
  • Simplify student loan repayment: Private student loan consolidation enables you to simplify student loan repayment. You can combine your student loans into a single student loan with one interest rate, one student loan payment and one student loan servicer.
  • No fees: Student loan refinancing doesn’t have any application fees, origination fees or prepayment fees. (Some lenders charge late fees).

Cons of private student loan consolidation

There are several cons of private student loan consolidation:

  • Need strong credit: To qualify for private student loan consolidation, you will need good to excellent credit. You will also need stable monthly income. If you have bad or average credit, you may need to apply with a cosigner.
  • No federal benefits: If you refinance federal student loans, and need federal benefit such as student loan forgiveness or income-driven repayment plans, then you may not want to refinance your federal student loans. Why? When you refinance federal student loans, the resulting student loan is a private student loan, which doesn’t offer these and other federal benefits. Alternatively, you could refinance private student loans only.
  • Rates can change: Unlike federal student loan consolidation, your interest rate with private student loan consolidation can change if you choose a variable interest rate. This can be advantageous if interest rates decrease. However, your student loan could become more expensive with a variable interest rate if interest rates rise.

Best student loan consolidation lenders

The best student loan consolidation lenders offer low interest rates, have flexible student loan repayment terms and offer hardship deferment.

You can apply to multiple lenders to maximize your chances to get approved and find the lowest interest rate for you. Before you apply to refinance student loans, most lenders allow you to check your interest rate for free within minutes with no impact to your credit score.

Compare the latest rates for student loan refinancing

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