Debt · June 19, 2020

Factors to Consider When You Consolidate and Refinance Student Loans

Repaying student loan debt can take years, but there are various options available to help you manage this financial obligation. You may want to learn more about how to consolidate and refinance student loans when your personal financial situation changes or when interest rates are low.

Consolidating versus refinancing

The terms consolidate and refinance are often used in reference to student loans, but they carry different meanings. Before you make any changes to your student debt, it's important to understand the difference.


Consolidating student debt refers to combining several loans into one new loan. This allows you to make one monthly payment for all of your student loan obligations, and it can extend your loan terms so you can pay them off over a longer period. When you consolidate, you won't lower your interest rate, but you can switch from a variable to fixed rate for added payment stability. If you have federal student loans, you can consolidate them using a Direct Consolidation Loan through the Federal Student Aid Office of the Department of Education.


When you consolidate and refinance student debt through a bank, you'll pay off existing federal and private student loans by taking out a new loan. Refinancing, which is only available through a bank or private lender, allows you to take advantage of lower interest rates. This could reduce the amount of interest you pay over the long term and save you money.

Are you eligible to refinance?

You may be eligible to refinance if you have privately issued student loans or a mix of federal and private loans. Additionally, you'll need to meet the bank's criteria to qualify for a new loan. If you have good credit and a steady income stream, you may be able to successfully lower your interest rate through a student loan refinance.

Factors to consider

Before you consolidate or refinance your student loans, you should understand how any changes will affect your future payments. These can come with both advantages and drawbacks.

Benefits of consolidating and refinancing

  • Potential for lower payments: If you extend your payback period through loan consolidation or refinancing, you may decrease your monthly payment.
  • Interest rates: Refinancing through a bank may allow you to open a new loan at a lower interest rate, if available.
  • Simplified loan management: Combining several loans into one allows for easier payment processing and tracking.

Potential disadvantages

  • Loss of federal loan benefits: When you consolidate or refinance, you may lose some of the benefits associated with federal student loans. These benefits may include the ability to defer payment if you're out of work, income-based repayment options or debt forgiveness if you work for the government. You may also lose the ability to claim a tax deduction of up to $2,500 for student loan interest paid each year, if you meet income requirements.
  • Added costs: The fees associated with refinancing may offset some of the benefit of the lower interest rate. You may also increase the amount of interest you'll pay over the life of the loan when you extend the payback period.

Other noteworthy points

Keep in mind that you can't reverse refinancing, and you won't have access to your former loan terms at any time. Technically speaking, your new lender is paying off the loan you're refinancing and issuing you a new loan.

Your current loan balance is also an important point to consider. If you're close to paying off your loans, it may not be worth starting over again.

Consolidating or refinancing student loans may help simplify your debt payments, lower your monthly expenses or potentially save money in interest, but it's important to know what you may be giving up by choosing one of these options. If you think you'd qualify for refinancing and would like to take advantage of lower interest rates, talk to a trusted financial advisor who can help you decide what makes sense for you.


A few financial insights for your life

No results found

This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.

Links to third-party websites may have a privacy policy different from First Citizens Bank and may provide less security than this website. First Citizens Bank and its affiliates are not responsible for the products, services and content on any third-party website.