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How Consolidating Student Loans Can Still Save You Money

Sara Cantu
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Paying for college isn’t easy. With the costs of a college degree rising, many students are faced with some difficult decisions when it comes to how they will pay for it all. For the vast majority of students, the answer is student loans.

But student loans, while helpful in paying for school, come with their own unique set of challenges. Repayment can cause significant financial strain for college grads. Not to mention the hassle and headache of paying off multiple types of student loans with different loan servicers, interest rates, monthly payment amounts, and due dates.

That’s why student loan consolidation is such a popular repayment strategy for graduates. It makes student loans easier to handle with just one payment and one due date to remember.

The only problem? Consolidating student loans through the federal government — AKA a Direct Consolidation Loan — doesn’t save you money or provide you with more favorable terms. It simply combines your federal student loan debts.

However, consolidating student loans through a private financial institution — AKA student loan refinancing — provides additional benefits beyond consolidation including the opportunity for lower rates to save big on lifetime interest.

Learn more about what student loan consolidation is, which method of consolidation is best for you, and the benefits of consolidating student loans.

What is student loan consolidation?

Repaying student loans after graduation can lead to financial hardship for many graduates. With the national student loan debt as high as $1.7 trillion, it’s no wonder the issue has gained such attention and become such a common concern among borrowers. One of the best ways to avoid financial struggle after graduation may be to learn how to consolidate student loans.

Why consolidate student loans? For one, dealing with several different lenders and bills can be problematic once repayment kicks in. Not only can juggling payments become complicated, but you also be paying way more in interest than you’d initially intended, and this can be devastating for your bottom line.

You have options when it comes to student debt consolidation. Here are a few choices you have.

Federal Direct Consolidation Loan

Typically, when borrowing money for college, you would have borrowed from the government or a private lender.  If you borrowed from the government, you may choose to pursue a Federal Direct Consolidation loan.

This type of loan applies only to students who have taken out federal loans. But it’s a solid solution, nonetheless. With a Federal Direct Consolidation Loan, you’ll consolidate all of your federal education loans into just one loan. Free of charge, this type of loan will rid you of dealing with multiple lenders each month.

To qualify, all you’ll need to do is complete your loan application and Promissory Note, then agree to the new loan terms through your Direct Consolidation Loan. After this, you’ll be responsible for just a single monthly payment. This is a great option for federal student loan borrowers hoping to simplify their monthly expenses and begin living a more stress-free financial life.

Why consolidate student loans through refinancing

Student loan refinancing is another good option if you are hoping to save money on your school loans. Whether you have federal loans or private student loans, or perhaps even a combination of the two, student loan refinancing is a wise choice for taking charge of your finances as you enter the workforce. And there are plenty of benefits to doing this, too. Here are a few student loan refinancing benefits.

Save money with a lower rate

Securing a lower interest rate on your loans is the number one way to save money, all else being equal. This is one of the many student loan consolidation benefits borrowers can take advantage of.

One of the easiest ways to secure a lower rate on your student loans is to refinance through a private lender. You may have agreed to less than stellar loan terms when you first signed on. This is all too common in borrowers facing a desperate financial situation that requires fast loan approval. But just because you agreed to a high interest rate once upon a time doesn’t mean you need to live with this forever. You can negotiate a lower rate once you make the choice to consolidate your loans. By lowering your interest rate and securing a lower monthly payment, you can use that extra money to put toward other debt or for discretionary spending.

Extend your term to lower monthly payments

Renegotiating your loan terms can save you money throughout the course of your loan. By extending your term, you’ll be able to make lower monthly payments and start saving money for the future.

Extending your loan terms and making lower monthly payments is particularly beneficial if you are currently living paycheck to paycheck and have little money for additional expenses. This is one of the many ways student loan consolidation benefits that can alter the course of your financial direction. 

Shorten your terms to pay off debt faster

While extending your loan terms can yield lower monthly payments, the opposite may also be useful. You can pay off your loan much faster by shortening your loan repayment terms. This will save you interest throughout the course of your loan, as well as get you that much closer to a student debt-free life. Whether to improve your credit score or simplify your financial life, learning how to consolidate student loans and ridding yourself of student debt sooner can have a great impact on your financial future.

The 4 Best Companies to Refinance Student Loans

Our Top-Rated Picks for 2022 Offer Low Rates and No Fees

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No Maximum Loan Amount

Fixed Rate

4.48% – 7.29% APR 4

Variable Rate

2.99% – 7.24% APR 4
98% of surveyed customers would recommend SoFi to a friend

Fixed Rate

3.99% – 8.24% APR 3

Variable Rate

2.49% – 8.24% APR 3
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Precision Pricing — Pick Your Monthly Payment

Fixed Rate

3.99% – 8.99% APR 2

Variable Rate

3.24% – 7.99% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

3.94% – 8.48% APR 5

Variable Rate

Not Offered

How to find the best student loan consolidation rates

Deciding to consolidate your student debt with student loan refinancing is a wise move for your financial health and one that can reap big rewards in the long run.

Once you decide to consolidate student loans through refinancing, you can begin shopping different lenders. And luckily, Purefy is here to make the process simple, convenient, and fast.

Use our Compare Rates tool to see your pre-qualified rates from our marketplace of top lenders — all in one place, all at once, and with no impact to your credit score. You’ll get a birds-eye view of what different lenders have to offer, and you can then make a sound decision about which terms will work best for your long-term financial goals.

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Student Loan Refinancing

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ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 11-21-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.24% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 3.49% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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