If you’re juggling multiple student loans, you may be able to simplify your debt by consolidating or refinancing into one new loan.

If you’re juggling multiple student loans, you may be able to simplify your debt by consolidating or refinancing into one new loan.
If you’re one of 43 million Americans saddled with student debt, repaying those loans can be daunting. Like many grads with a mix of federal and private loans, as you write (virtual) checks each month, it may feel like you’re barely making a dent. To simplify your loans and possibly secure better terms, you may be able to reorganize your student loans into a single loan. Before you rush to the bank, hold up. Pretend like you’re back in class and take notes.
One-third of adults 18 to 29 have student loan debt, and about one-third of all Americans with student loans owes about $30,000, according to U.S. News. That’s a lot of Benjamins.
When you take out school loans, you can borrow from the federal government, private lenders, or both. One student could have two, three, or more loans, all with different terms, conditions, payment dates, and amounts. It’s overwhelming.
When you consolidate or refinance, you replace your old loans with one new loan with fresh terms and a new—hopefully lower—interest rate. That can help you better manage your finances or even pay off your student loans early. However, there are a lot of conditions and rules, so read on.
First things first: When we talk about reorganizing student debt, the most important thing to know is only federal student loans can be consolidated through the federal government.
There’s no such thing as a private consolidation loan. If you have private loans or a mix of federal and private, you can’t consolidate your loans, but you can refinance them with a private lender.
Here are a few key considerations:
When you consolidate federal student loans, you take multiple loans and roll them into a new type of consolidated loan, such as a Federal Direct Consolidation Loan. The new loan will have a fixed interest rate based on the average interest rates of your existing loans. You can only consolidate your federal loans one time, and you must apply through the government.
When you consolidate your federal student debt, the new loan will have a fixed interest rate. Unlike a variable rate loan, your interest rate won’t change. You won’t have to stress about fluctuations and what that might cost you. Of course, that also means if rates go down, you’re stuck with your set rate.
If you have private loans or a combination of private and federal loans, you may be eligible to refinance. Working with a private lender, you gather your existing loans and use the new loan to pay them off.
Unlike federal consolidation, refinancing allows you to shop lenders to find the best rates and terms. Depending on market conditions and your credit score, you may secure a lower interest rate. Some refinanced loans have fixed rates, while others start fixed and convert to variable after a period, so read the fine print.
Here’s a word of caution: Once you refinance any federal student loan with a private lender, that’s a permanent switch. You can’t change them back to federal loans, and you lose access to any government benefits associated with federal loans, including possible loan forgiveness programs.
If you’re asking, “Should I consolidate my federal student loans into a federal Direct Consolidation Loan?” gold star for paying attention. If you have multiple federal student loans, consolidation could be a good move. You can simplify your life with one monthly bill, and you might even lower your interest rate and your monthly nut.
Before you go buy a round at the bar, first things first—you need to get organized. Collect all the documents on your current loans so you can compare payment amounts, interest rates, and terms. Then consider these points:
Whether you have several private loans or a mix of federal and private loans, refinancing allows you to pay off those existing debts and move ahead with a single loan. Your lender pays off your existing loans with a new loan that (hopefully) has a lower interest rate. Before you sign on, review these points:
With higher-ed costs soaring, you probably needed to borrow money for that liberal arts degree or a top MBA program. If you have a good handle on your student loan repayments, pay on time, and your interest rates seem reasonable, stay the course.
But, if you want one bill, a lower monthly bill, or to look for better rates, consolidating or refinancing your student loans can be a smart move. Learn more about student loans, use a student loan consolidation calculator to estimate savings, and then shop around with lenders.