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Federal Student Loan Consolidation and Refinancing 101

There are many types of federal student loans out there — direct, subsidized, unsubsidized, Stafford, you name it — and it’s possible you can save money by consolidating those loans through refinancing. It’s even possible to combine them with any private student loans you have.

However, it’s worth spending the time getting familiar with your loans before making the switch as there are certain benefits associated with federal student loans that you might lose if you consolidate or refinance.

Check our student loan calculator to compare your rates.

Piggy bank on table next to books

OK, but hold on. Can you explain student loan consolidation and refinancing first?

So happy you asked. Loan consolidation and refinancing are often used as synonyms, but that’s only the case sometimes — so let’s get the record straight once and for all. Keep in mind that these definitions hold true whether your loans are private or federal.

  • When you have multiple student loans (for example, you have both Stafford and direct loans), consolidation combines them into one. The outcome? One monthly payment instead of you having to juggle many different ones, sometimes with multiple servicers.When you consolidate, your interest rate will be a weighted average of the interest rates on the loans you combine. How does that work? Let’s say you have one $10,000 loan with a 6% interest rate and another $5,000 with 5%, and you’re planning to pay them off in 10 years. Your new rate would be 5.67%. The calculation works like this: As $10,000 is ⅔ of your total loan balance and $5,000 is ⅓, you’d multiply each interest rate by that fraction and add the results: (⅔ * 6% + ⅓ * 5% = 5.67%). You won’t save money on interest rates — however, it could make life easier by reducing the amount of time you spend managing your payments and loans.
  • If you only have one loan, you can’t logically consolidate it — but you can refinance it. When you refinance a student loan, you typically work with a company to pay off the original loan or loans and get a new single loan at a lower rate.
  • You might wonder why you couldn’t get that lower rate back when you first applied for the loan. Think about it like this: You took out your loan when you first started your education and the lender had very little proof that you would or wouldn’t be able to pay it back down the road. You were probably in your teens or early 20s with limited work experience. However, after graduation and with a few years of professional experience — and more proof of financial stability on the books — banks and lenders like Earnest can give you better rates because they believe in your ability to pay back your loan. You read that right — we believe in you!
  • If you have multiple loans and want to combine them and get a better rate, you accomplish this by refinancing — which effectively consolidates your loans as well. At Earnest, we can take all of your loans (private and/or federal) and combine them into one, with a single, better interest rate designed to save you money. Check out how much money you could save here!

Federal student loan consolidation vs. refinancing. Help me choose!

We strongly believe that student loan refinancing is a great opportunity to save money for many people. But, as with most rules, there are some exceptions.

Here’s when a Direct Consolidation Loan may be your best bet:

  • You’re on the job hunt but haven’t found your perfect job just yet. Earnest can only refinance your loan(s) once you’re employed or have an offer letter.
  • You’ve been denied for refinancing but still want to simplify your monthly payments.
  • You have only subsidized low-interest rate federal (not private) student loans you’re looking to consolidate.
  • You’re able to take advantage of loan repayment benefit programs such as Teacher Loan Forgiveness or Public Service Loan Forgiveness. If you refinance with a private company, you may lose this benefit. Learn more about federal student loan forgiveness, cancellation, or cancellation policies and programs here.

However, if you are a good candidate for refinancing, and you don’t qualify for any of the above government forgiveness programs, refinancing with Earnest could save you thousands — even tens of thousands — of dollars.

What if I have both federal and private student loans that I want to consolidate and/or refinance?

Getting complicated on us, are you? That’s ok, we like a good challenge (plus, the answer is more simple than you might think).

Up until recently, it wasn’t possible to consolidate federal and private student loans. But companies like Earnest have changed that. We allow you to consolidate through refinancing, giving you a better rate at the same time as simplifying your monthly payments. Additionally, with Earnest’s Precision Pricing, you can match your desired payment with a desired term in order to create a personalized payment plan that works for your budget.

If refinancing is for you, get started with our two-minute Quick Rate here. More questions? Our Client Happiness specialists are available by phone at (888) 601-2801 and by email at

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