The Difference Between Student Loan Consolidation and Refinancing

Most individuals repaying a student loan (or several) have heard the terms, but don't understand what they mean, or how they differ. We'd like to provide some clarity to for those of you trying to understand the difference and asking questions such as:

  • How will my interest rate change if I consolidate? What about if I refinance?
  • Which of my loans are eligible for each option?
  • Will my monthly loan payment be reduced either way?

What is Student Loan Consolidation?

Student loan consolidation allows a borrower to combine two or more federal loans into one. When dealing with student loans, consolidation refers to the Direct Consolidation Loan program, an option offered only by the federal government. With a Direct Consolidation Loan, you can only consolidate your federal student loans, not private, and your new interest rate will not decrease. Your new rate will simply equal the weighted average of your current rates. Your new loan term will depend on the amount of your debt and the repayment plan you select.

What is Refinancing?

Refinancing also combines two or more loans into one new loan. You can combine both federal and private education debt when refinancing and you'll receive a new (often lower) interest rate based on your credit history and determined by your new lender. You can learn more about MEFA's education refinancing loan here.

The Comparison

Both student loan consolidation and refinancing will make your life easier by requiring just one monthly loan payment. However, because consolidation only takes a weighted average of your current loan interest rates, you won't save money on a monthly basis unless you extend your loan repayment term. And extending your loan term will increase the amount you pay for your loan in total over time. Refinancing can often offer you a new, lower rate, which can equate to a lower monthly loan payment and extra cash per month.

One thing to keep in mind with refinancing: if you include your federal loans, you're giving up benefits associated with federal loans, such as different repayment plans, some based on your income, and public service loan forgiveness. Make sure you evaluate these options (you may not qualify for them) before you refinance your federal loans.

Here's a comparison to keep your two options straight:

Features Student Loan Consolidation Student Loan Refinancing
Interest rate reduction No1 Yes2
Federal loans eligible Yes Yes
Private loans eligible No Yes
One, single monthly loan payment Yes Yes
Maintain federal loan benefits, such as income-based repayment plans and public service loan forgiveness Yes No
Potential to save money on a monthly basis No3 Yes
Credit check required No Yes

If you think refinancing might be best for you, our MEFA REFI product offers competitive, fixed interest rates. You can learn more about our product here. And if you have questions, we're happy to answer them. Give us a call at (855) 433-REFI (7334) or send us an email at

Learn more about MEFA REFI

1 Your interest rate in a consolidation loan will equal the weighted average of your previous interest rates
2 You will very possibly receive a new, lower interest rate when you refinance based on your credit history
3 If your repayment term remains the same, you will not save money on a monthly basis by consolidating, as your interest rate will not change. You will only save money on a monthly basis if your repayment term is extended