Consolidate? Refinance? What’s the difference?
We’re continuing our series on Financial Myths with a focus on loans, and what you do with them. Specifically, “refinancing” and “consolidating.” These terms are often confused, but they have a crucial difference, especially when you are managing student loan debt.
Consolidation combines multiple federal loans into one easy federal payment. This move is for simplicity and ensures you keep access to valuable government-backed benefits like Public Service Loan Forgiveness (PSLF) and income-driven repayment options.
Refinancing is when a new loan from a private lender pays off your old loans. The goal is to secure a lower interest rate to save money. However, if you pay off federal loans, you must understand you are permanently giving up all federal protections in exchange for the lower rate.
Which option is right for your financial goals?