Should I Consolidate Student Loans?

By Mentor Staff | Edited By Mentor Staff

Updated On October 5, 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 have federal student loans and want to pay off your student loans faster, you may be asking this essential question: Should I consolidate my student loans?

While the answer may appear simple, it’s important to understand whether consolidation is right for you. Both student loan consolidation and student loan refinancing are two popular strategies to pay off student loans. However, consolidation and refinancing aren’t the same.

For example, student loan consolidation involves combining your federal student loans through the federal government. In contrast, student loan refinancing involves combining your federal and private student loans with a private lender like a bank or online lender.

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%
4.83% - 7.64%
3.53% - 7.64%

View Details

on ELFI's website

Overview

Variable APR:
3.53% - 7.24%
Fixed APR:
4.83% - 7.64%
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

In this guide, you will learn everything you need to know to determine whether you should consolidate student loans, including:

Consolidate student loans: overview

If you want to organize and simplify your student loan payments, student loan consolidation is one potential option to consider. When you consolidate student loans, you combine your current federal student loans into a new student loan called a Direct Consolidation Loan. Through student loan consolidation, the U.S. Department of Education will give you a single federal student loan with only one monthly payment.

With a Direct Consolidation Loan, you will not get a lower interest rate. Rather, the interest rate on your Direct Consolidation will be equal to the weighted average of the interest rates on your current federal student loans, rounded up to the nearest 1/8th percent. Direct Consolidation Loans have a fixed interest rate, which means the interest rate will stay the same over the life of your student loan.

The good news is that a Direct Consolidation includes federal benefits such as student loan forgiveness and income-driven repayment.

When to consolidate student loans

You may be wondering when to consolidate student loans. Student loan consolidation could be helpful for you in at least three situations:

Simplify your student loan payments

The top reason to consolidate student loans is to simplify your student loan payments. For example, if you have multiple federal student loans with different student loan payments, student loan consolidation can help.

When you consolidate student loans into a Direct Consolidation Loan, you can simplify your different student loans and payments into a single student loan and one student loan payment.

When you’re paying student loans, it’s easier to manage one large student loan compared to multiple student loans.

Qualify for student loan forgiveness

A Direct Consolidation Loan could help you qualify for student loan forgiveness. For example, if you have FFELP Loans or Perkins Loans, you will need to consolidate your student loans into a Direct Consolidation Loan to qualify for Public Service Loan Forgiveness.

If you work for a qualifying non-profit or public service employer, you could get federal student loan forgiveness. You will need to make 120 qualifying monthly student loan payments and enroll in an income-driven repayment plan, among other requirements. Your remaining student loan balance then can be forgiven tax-free.

Get an income-driven repayment plan

When you consolidate student loans, you can also qualify for an income-driven repayment plan. An income-driven repayment plan adjusts your monthly student loan payment based on your income and family size. Therefore, you can lower your monthly student loan payment based on your discretionary income.

There are four main income-driven repayment plans: IBR, PAYE, REPAYE and ICR. After 20 or 25 years of student loan payments, you could get federal student loan forgiveness on your remaining student loan balance. However, you will owe tax on the amount of student loan forgiveness you receive.

Consolidate student loans: pros and cons

Before your decide whether to consolidate student loans, it’s important to understand the pros and cons of student loan consolidation.

Student loan consolidation: pros

  • Simplify to one student loan
  • Reduce to a single monthly student loan payment
  • Get a fixed interest rate
  • New student loan servicer
  • Qualify for student loan forgiveness

Student loan consolidation: cons

  • Student loan interest rate won’t decrease (and could increase slightly)
  • Total student loan payment could increase if you extend your payment period
  • Your student loan principal could increase if you consolidate student loans with unpaid student loan interest
  • Student loan consolidation not available for private student loans

Student loan refinancing: overview

While student loan consolidation could be a good option for some student loan borrowers, student loan consolidation won’t save you money on your student loans. In contrast, student loan refinancing can help you save money and pay off student loans faster.

Student loan refinancing lets you get a new student loan with a lower interest rate, lower student loan payment or both. When you refinance, your new student loan is used to pay off your old federal student loans, private student loans or both. Plus, you can choose a new student loan repayment term ranging from five to 20 years. Student loan refinance also provides flexibility to choose either a fixed or variable student loan interest rate.

How do you refinance student loans? You can apply directly online and compare the best lenders to refinance student loans. With student loan refinancing, you can work directly with a private lender such as a bank or online lender. In contrast, student loan consolidation requires you work only with the federal government.

Calculator: This refinancing vs consolidation calculator shows you how much you can save when you refinance student loans vs consolidate student loans.

When to refinance student loans

There are at least three good situations when to refinance student loans:

Get a lower interest rate

If you want to get a lower interest rate, student loan refinancing could be a smart option. Unlike student loan consolidation, refinancing student loans can get you a lower rate. With a lower interest rate, you could save hundreds or thousands of dollars over the life of your student loan.

This student loan refinancing calculator shows you how much money you can save with student loan refinancing.

For example, let’s assume you have $100,000 of student loans, an 8% interest rate and 10-year repayment term. If you refinance and get a 3% interest rate and 10-year repayment term, you would save $248 each month and $29,720 over the life of your student loan.

Lower your monthly student loan payment

Student loan refinancing can also lower your monthly student loan payment. If your monthly student loan payment is too high, refinancing could help you get a longer student loan payment.

For example, let’s assume you have $50,000 of student loans, a 7% interest rate and a 10-year repayment term. If you refinance and extend your student loan repayment period to 20 years with a 3% interest rate, you would save $303 each month on your student loan payments.

Change student loan terms

If your goal is to change student loan terms, refinancing is a good strategy. Why? With student loan refinancing, you could choose either a fixed or variable interest rate, choose a new student loan servicer, and select a new student loan repayment term.

Student loan refinancing provides more flexibility than student loan consolidation. For example, student loan consolidation only provides a fixed interest rate while student loan refinancing offers a fixed or variable interest rate and more options for different student loan servicers.

Refinance student loans: pros and cons

It’s important to understand both the pros and cons of student loan refinancing:

Student loan refinancing: pros

  • Lower your interest rate
  • Simplify to one student loan
  • Reduce to a single monthly student loan payment
  • Get a fixed or variable interest rate
  • Choose a new student loan servicer
  • Get new student loan terms

Student loan refinancing: cons

  • No access to student loan forgiveness
  • Won’t qualify for income-driven repayment
  • Need good to excellent credit (unless you have a co-signer)

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