While you can only consolidate federal student loans with a direct consolidation loan. There is an alternative that can lower your interest rate and save you money. Unlike a direct consolidation loan, this alternative is called student loan refinancing. Though it is sometimes referred to as private student loan consolidation be careful not to mix private refinancing up with federal consolidation.

There are a few key differences between the two though. Both can be used to consolidate multiple loans into one. Refinancing private student loan is offered by private companies and you can refinance private and federal student loans and consolidate them. Your student loans are combined into one loan with a new interest rate and repayment plan. Your new interest rate is determined by your credit history and repayment terms. Typically range between 5 and 20 years those. Who student loan refinances with good credit history can typically save thousands over the life of the loan with the new low-interest rate.

Direct consolidation loans on the other hand. Simply give you a weighted interest rate based on the interest rates of all of your previous loans. You cannot lower your interest rate or save any money using this method. Now it's harder to get approval for private student loan refinances, as compared to federal student loan consolidation. Due to the credit and income criteria, anyone with federal student loans can consolidate. Their loans using a direct consolidation loan as there are no credit or income requirements. Luckily you can increase your chances of being approved for refinancing by applying with the cosigner. This is a good idea for recent graduates, who have a little credit history or substantial income.

Student Loans: Refinancing vs. Consolidation.

Perhaps you’ve had a moment. Where you’ve finished grad school, the grace period on your loans is about to end, and you’re not pumped about. How much of your budget those monthly loan payments will eat up? Let’s look at the differences between consolidation and refinancing. And see how each strategy may impact you.

Most often, the term “consolidation” applies to federal loans, while “refinancing” involves at least one private loan.

Student loan consolidation is the act of combining different loans into one single loan, one servicer, one payment. It’s important to note, though, that with federal student loan consolidation, your interest rate does not decrease.

Why Consolidate Them?

Today, you’re most likely to do in order to qualify for an income-based repayment plan. You also may consolidate in order to switch from variable interest rates to a single, fixed interest rate. Consolidation might help you to become better organized, but you’re just as likely to be able to track different federal loans using the same account login.

Think carefully before you sign up for a loan consolidation, that extends your loan term. Your monthly payments may decrease, but you ultimately could pay thousands of dollars more in interest. Consolidation also averages your existing interest rates to generate the new combined rate that you pay. Which prevents you from eliminating your highest interest debt first.

For refinance a student loan, you’re replacing one or more existing loans with a new, private student loan that offers different terms, primarily a lower interest rate.

If you’re paying a high interest rate on private student loans. And you have a strong credit score, you’ll often realize pretty quickly that refinancing to a lower rate. Is a good move, the decision gets dicey, though, when federal loans become involved. you generally, don’t want to refinance a federal loan with a private lender. If you do, you typically lose a number of protections and benefits that the government offers. 

Such as income-driven repayment, deferment, and loan forgiveness. While many loan forgiveness programs aren’t perfect and present their own risks. You probably don’t want to abandon any significant credit you’ve earned with them.