Help! Should I refinance or consolidate my student loans?

Graduate peering over a book

Once upon a time, you went to college and landed a job. You did exactly what you were supposed to do! Except, now you have a collection of student debt that feels like a mountain to climb. To get started, here’s what to look for and what options you need know.

What types of student loans do you have? Are they private, federal or a combination?

Private loans are from private financial institutions like a bank of credit union.  Federal loans are offered by the federal government, usually through your school’s financial aid program. You’ll need to know the type in order to decide how you want to pay them off, and the requirements for how you pay them.

How can refinancing or consolidating help me pay off my student loans?

While these terms are occasionally used interchangeably, they are distinctly different options for combining multiple student loans into a single, new loan. Both offer the simplicity of a single payment every month and the possibility of extending the length of the loan to lower those monthly payments, but there are significant differences.

What is refinancing?

Refinancing is done by a private lender and can combine either private loans, federal loans, or both. Refinancing:

  • requires a credit application with a private lender
  • is most often done to get a lower interest rate or
  • is done to extend the length of the loan
  • can lower the monthly payments (though this does mean you’ll pay more in total over the life of the loan due to additional interest).

What is consolidation?

Consolidation is usually done by applying with the federal government and can only be used to combine federal loans. With consolidation, you

  • won’t be offered a lower rate
  • will receive a new consolidated rate that is a weighted average of your existing federal loans and the term will likely be 10-30 years
  • can extend your term, thereby lowering your monthly payments
  • may also be a required first step to take advantage of some federal loan assistance programs.

What should I do now?

  1. Know the type of loans that you have, so you can make the best decision for your situation. Federal loans may also have some special features, such as grace periods or forgiveness, that you lose if you refinance, so pay close attention to what you stand to lose, not just what you might gain.
  2. Be very clear about what your goal is, such as simplification, lower rate or lower payment.
  3. Chat with a BrightDime coach. This is a decision we can help you walk through along with your other financial goals, so start a chat with us today!