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When Federal Student Loan Consolidation Is Worse Than Refinancing

Sara Cantu
federal-student-loan-consolidation-or-refinancing
federal-student-loan-consolidation-or-refinancing

Federal student loan
Payments Return August 31

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Federal student loan
Payments Return August 31

We've got you covered.

Get Purefy’s free 20-page Ultimate Guide with just one click.

Dealing with tens of thousands of dollars in student debt is stressful. Add to that dealing with several different lenders and you’ll find that repayment can quickly become overwhelming.

It may come as no surprise that the U.S. is in a debt crisis. The national student loan debt has reached a frightening level, with many borrowers wondering if there will ever be relief. While the government is in the process of taking steps to help alleviate the burden of student loan debt for qualifying borrowers, there is still much to be done to ensure high student debt doesn’t spell doom for graduates.

While paying off student debt is notoriously stressful, this can be amplified by dealing with multiple student loan lenders on a regular basis. Not only can multiple loan payments add up and eat away at your income, but they can quickly become a source of mental stress, with bills piling up and the process of multiple monthly payments eating away at your time.

So, what is a borrower to do when the task of paying different lenders each month becomes a burden that seems too much to bear?

How to consolidate student debt

There are ways to combat the messiness that comes with having several different student loan lenders. For many borrowers in search of relief, the answer is to consolidate their federal student loans.

For others, the answer lies in student loan refinancing. Which route is best for you will depend on your unique financial situation and goals for the future. Determining these is the first step toward finally getting that student debt under control.

If you are wondering, “Should I consolidate student loans?” it’s important to know what the process entails before you decide. When to consolidate student loans is another complicated question you’ll need to answer, as times of financial trouble might have caused your credit score to take a dip. This could make it more difficult for you to secure the kind of deal you want when it comes to your student loans.  

What is federal student loan consolidation? 

Loan consolidation is common, especially when it comes to student debt, and there are many reasons why borrowers may want to learn how to consolidate federal student loans. 

The process of federal student loan consolidation involves a Direct Consolidation Loan. If you have federal student debt through different lenders, you can apply for a Direct Consolidation Loan and streamline your student loan payments once and for all. 

However, be aware that a Direct Consolidation Loan won’t work for everyone. If you are dealing with private lenders for your student loans, a Direct Consolidation loan may be off the table. In this case, you may need to explore other options. 

Benefits of federal consolidation  

Learning how to consolidate federal student loans is a smart move if you are hoping to take charge of your finances. And there are benefits to doing this. One benefit is cost savings, which comes if you are able to secure a new, low interest rate on your federal student loans. Rather than pay high interest for the duration of your loan, consolidating to a lower fixed rate will help you save money in the long run.  

There are other perks to consolidating your federal student loans. For example, doing so allows you to keep your access to income-driven repayment plans and other loan forgiveness plans. You may even qualify for programs you didn’t qualify for initially. Also, if you have a low credit score, your interest rates won’t be affected like they would when consolidating private student loans.  

But there are perks to working with private loans, too. Student loan refinancing may be the perfect solution for streamlining your student debt and starting fresh. By learning how to consolidate private student loans, you may be in for some significant savings, as well.  If you’re hoping to learn how to consolidate private student loans, there’s no better time to start than now.

Student loan refinancing vs consolidation 

Many borrowers wonder whether refinancing or consolidation is more worthwhile in the long run. The truth is that everyone’s financial situation is different – and while there is no one-size-fits-all approach to tackling student debt, refinancing does have its own unique benefits.

If you are wondering when to consolidate student loans, you’ll first need to evaluate your current financial standing. A bird’s eye view of your earnings, expenses, and future spending plans will help you think clearly about your money and uncover how you can improve your finances in the near future.  

When you choose to refinance, you have the ability to do so for both federal and private student loans. This is good news for those who have gone through several different lenders to fund their education, which many borrowers do when first taking out their loans. 

One of the biggest reasons borrowers seek out refinancing is the savings. Refinancing allows you to save by giving you the opportunity to lower your interest rate. In turn, you can lower your monthly payment. 

There are other benefits to student loan refinancing, like the potential to renegotiate your terms. For example, you can extend your repayment period, which will lower your monthly payment and save you even more money each month. Or you could shorten your payment, allowing you to reach that much-awaited debt-free lifestyle even more quickly than you’d anticipated. 

How to find your best student loan refinance option in under 5 minutes 

Refinancing your student loans is a process, but it doesn’t have to be a complicated one. Like when shopping for a new house or vehicle, research is key to finding the best deal.

Purefy’s Compare Rates tool can help you determine which lenders can offer you the best rates, offering you a side-by-side comparison to evaluate. This is one of the best tools you can use to make an educated decision about student loan refinancing. By taking the time to weigh your options, you’ll ensure your refinancing journey really works for you.

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