With respect to student loans, consolidation specifically refers to the Federal Direct Consolidation Loan program, which essentially allows you to turn one or more federal student loans into a different kind of federal student loan.The main reason you would consider consolidation is it may give you access to the best federal student loan repayment plans. On the other hand, refinancing means taking out a new to replace one or more federal or private student loans.Student loan consolidation allows you to combine those individual loans into one loan, meaning one payment (or at least fewer payments), one interest rate, and possibly a longer repayment term.Depending on the structure of your consolidation loan, you may be able to lower your monthly payments or save interest in the long run by paying your loan back sooner.If you have federal student loans, you can learn about the government’s Direct Consolidation loan that is for federal student loans only.When it comes to consolidating, you have to weigh the benefits versus what you’re giving up.It takes borrowers an average of 21 years to repay their student loans, while 28% of students are in default (or miss payments for 270 days or more) within five years of entering repayment.
In some cases you may be able to lower your interest rate and save money over the life of your loan.
One of the main points of confusion is that the word consolidation is often used to mean EITHER consolidation OR refinancing.
But those are two very different things with very different pros and cons.
If you’ve recently graduated from college and have student loans, you may have heard about loan consolidation. It’s possible that you have multiple loans from different sources such as federal student loans and private student loans.
When you begin repaying those loans after graduation, you’ll be making separate payments for each of them, and possibly paying different interest rates that could change over time.