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Private Student Loan Consolidation and Refinancing 101

Consolidation and refinancing may be new terms for you so we have broken down the basics for you.

But first, go ahead and give yourself a pat on the back. By reading this, you’re already a step ahead to improve both your financial outlook — and peace of mind — by looking into consolidation and refinancing.

What do private student loan consolidation and refinancing mean?

When you consolidate your loans, you combine multiple loans into just one — however, the overall interest you’re paying does not change.

When you refinance your loans, you typically work with a new company to pay off the original loan or loans and get a new single loan at a lower rate.

How does private student loan consolidation work?

When you complete a private loan consolidation, the interest you’re paying does not change. Instead, your new interest rate is a weighted average of the rates on the loans you’re consolidating. While consolidation can simplify your financial life, it won’t save you any money.

For example, 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. When you consolidate, or combine, them, your new rate will be 5.67%. The rate is calculated like this: $10,000 is ⅔ of your total loan balance and $5,000 is ⅓. You then multiply each interest rate by that fraction and add the results (⅔ * 6% + ⅓ * 5% = 5.67%).

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What about refinancing?

When you are refinancing you get a new rate, based on your current financial and credit profile. Refinancing is possible whether you have one or multiple loans. If you refinance multiple loans, you effectively also consolidate them, as you’re combining them together into one.

Here’s how we do it at Earnest:

  • First, an in-house team at Earnest looks at your profile to determine whether you are eligible for a lower rate than the one you currently have. (Why would we give you a lower rate? Well, now that you’re out of school and have a track record of repayment and income history, our technology and underwriters can tell you’re less “risky” than when you first took out the loan.)
  • Second, if you’re eligible and approved for refinancing, Earnest pays off the entirety of your previous loan(s) to your previous provider(s) in what’s known as a 10-day payoff. After that, Earnest is your new lending partner and will work with you over the coming years as you progress to paying it off completely.
  • Third, you set up your monthly payments to Earnest in a way that works for your budget. Earnest’s Precision Pricing allows you to match your desired payment with a desired term in order to create a personalized payment plan that works for your budget. That’s right — we’re here to help you on your terms, not ours.

So…should I consolidate and/or refinance my private student loans?

Consolidation alone is probably a good option if:

  • You’re still looking for a job.
  • You can’t get approved to refinance given your repayment, credit, and job history. In this case, you might want to consolidate and then consider refinancing down the road when your credit history improves.

Refinancing and consolidating might be a game-changer if:

  • You have one or multiple student loans, that include private and federal loans.
  • You’re over 18, have a college degree, and a full-time job or offer letter.
  • You have a solid track record of income and debt repayment.
  • Your student loans are in your name.
  • You have some savings (at least one month of living expenses), good credit, and positive bank account balances.

You can read more about what makes for a good refinancing candidate here.

Earnest offers private student loan consolidation and refinancing, all at once. That means not only will you only have one payment to make, but chances are good you’ll also get a better interest rate. Why is that so important? Better interest rate = saved money = more money in your pocket.

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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Earnest is a technology company using software automation, smart design, and exceptional service to restore trust in the lending industry and help clients take control of their finances.