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The Pros and Cons of Consolidating Student Loans

The Pros and Cons of Consolidating Student Loans

Conquer your student debt. Refinance now.

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People pursuing bachelor’s degrees take out, on average, about $32,300 in student loan debt according to data from the National Center for Education Statistics. And roughly two-thirds of 4-year college students are federal student loan borrowers.

So if you’re looking for ways to streamline your student loan repayment strategy, you’re not alone. It’s wise to research your options for solutions that may make it easier, faster, and less expensive to get out of debt.

Student loan consolidation and student loan refinancing are two ways to streamline your monthly payments. Consolidation keeps your loans with the federal government and may result in a longer repayment term, while refinancing privately may help you get a lower interest rate.

So, is it smart to consolidate or refinance? Let’s dig into the pros and cons of consolidating student loans.

Types of student loan consolidation

There are two types of loans you can take out to consolidate your student debt. You can either apply for a Direct Consolidation Loan from the U.S. Department of Education, or you can refinance all of your loans with a private lender into one single loan.

There are many differences between these two options, but two are particularly important to note. First, you can only consolidate federal student debt with a Direct Consolidation Loan. If you also have private loans, you’ll still have to pay those separately.

Second, refinancing your loans with a private lender may help you access a lower interest rate. This is not the case for Direct Consolidation Loans, which calculate your new interest rate based on a weighted average of the interest rates of all your existing loans, regardless of what the current market rate is for student loan interest rates at the time you consolidate.

The pros and cons of refinancing student loans (private student loan consolidation)

Private student loan consolidation is also known as refinancing. Here’s why you might, or might not, want a private lender to consolidate your debt.

Pro: You may be able to get a significantly lower interest rate

When you refinance* your loans, you’re essentially borrowing new money to pay off your existing loan balances. If you have a good history of paying your student loans on time and have built up your credit score, you may be eligible for a much better rate today than you were when you were a teenager taking out your first student loans. That means refinancing may save you hundreds or thousands of dollars over the life of your loan.

Pro: You may be eligible for more flexible repayment options

Refinancing your student loans also gives you an opportunity to restructure the way you make your payments. For example, you may prefer to make two biweekly payments each month rather than one monthly payment, which can help you save money on interest over time.

If you refinance with Earnest, you can also use our repayment calculator to choose a monthly payment and loan term that work well with your personal finance goals. You’ll also get an interest rate discount for setting up a monthly or biweekly autopay** from a checking or savings account.

Pro: You may be able to refinance without a cosigner

Many students need or want help from a parent or guardian in order to take out education loans. But once you’ve started your career and built a good credit history, you may be able to refinance on your own without help from a cosigner.

This means your parents would no longer be responsible for making sure you pay off your debt. For some people, this may relieve tension in relationships with parents or guardians.

Pro: You can choose between a variable interest rate or fixed interest rate

If you refinance your loans with Earnest, you’ll be able to choose between a variable-rate loan or one with a fixed interest rate. When a loan has a variable APR, that means the interest rate may go up or down over time as the market fluctuates.

Sometimes these rates are lower at the outset than fixed interest rates, which stay exactly the same for the life of your loan regardless of how the market changes. Earnest allows borrowers in good standing to ask to reevaluate their interest rates after a period of time if it’s possible a lower rate may be available.

Pro: You can choose a company offering loan terms that work for you

If you refinance your loans with a private lender, you can choose a company that works well for you instead of being forced to choose from the options offered by the federal government.

Earnest, for example, lets borrowers in good standing skip a payment*** every 12 months if they need the extra cash for an unexpected emergency. That payment will then be spread out evenly over the rest of your loan term, resulting in slightly higher payments. It won’t change the payoff date of your loan.

Con: You may lose certain borrower benefits and protections

The federal government offers certain protections and benefits for borrowers, such as Public Service Loan Forgiveness, income-based repayment options, forbearance, and deferment. These protections help borrowers avoid default, such as by lowering the minimum required payments, extending the term of the loan, or temporarily suspending payments.****

If you refinance with a private lender, you’ll lose access to these federal benefits. However, Earnest does offer other benefits to borrowers to help make it easier to transition. You can call Earnest’s Client Happiness Team any time with questions about your options.

Con: You may have a higher monthly payment

If you refinance your loans with a private lender, you may have to choose a shorter repayment period. While shorter repayment periods generally mean you’ll pay less interest over time because you’re paying down your principal balance faster, this also means you may have higher monthly payments than you do currently. Before you refinance, you should evaluate whether you’re financially able to make higher payments to save money over the long term.

The pros and cons of consolidating federal student loans in 2022

Let’s examine what federal student loan consolidation looks like. A Direct Consolidation Loan allows you to bundle all of your existing federal loans into one new loan with a single monthly payment. Your new interest rate will be a fixed rate calculated based on a weighted average of your existing loans, which means you may end up paying more interest over time.

Pro: You’ll only have to make one monthly payment for your consolidated federal loans

If you consolidate your federal debt with a new loan from the federal government, you’ll bundle all of your current loans into one new loan with a single loan servicer. So, if your current loans are serviced by multiple different companies, requiring separate payments, consolidating will make it simpler and easier to pay your bill each month. You can consolidate nearly any kind of federal student aid, whether you have Perkins loans, Parent PLUS loans, or other kinds of federal education loans.

Pro: You may have lower monthly payments

Consolidating your loans may give you a longer period of time to pay off your loan balance. This is potentially both a pro and a con, depending on your current needs and how you approach having a longer repayment period. Having lower monthly payments may make it easier for you to pay your bills in the short term if you’re working with a tight budget, however, this may also mean you pay more in interest over the life of the loan.

Pro: You may be eligible for a grace period

If you’re still within the grace period for one or more of your loans—such as if you’ve recently graduated from school—you can ask for the grace period to be extended to your new loan, as well. So, you may be able to defer payments on your new loan for several months if needed.

Con: Your new loan may result in higher interest payments

When you consolidate your federal loans, any outstanding interest on your existing loans will capitalize and become part of your principal balance. Moving forward, that means you’ll now pay interest based on a higher principal amount, and therefore may pay more interest over time.

Con: Your new interest rate may be higher

The interest rate for your new Direct Consolidation Loan will be calculated based on a weighted average of the interest rates of your existing loan amounts and rounded up to the nearest one-eighth of a percent. That means that if you have some loans with much higher interest rates than others, you may pay more interest over the life of the loan than if you kept your initial repayment plan as it was.

Con: You may lose progress toward loan cancellation or forgiveness options

If you’re eligible for some loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF), consolidating your loans will erase any progress you’ve made. PSLF cancels outstanding debt for certain borrowers in public service careers after they’ve met specific requirements, including a set number of payments over a specified period of time. After consolidating your loans, however, any qualifying payments you made previously on your original loans will no longer count toward eligibility for forgiveness.

Similarly, the clock will reset on any income-driven loan cancellation you may have previously been eligible for. Your outstanding federal student loan balance is forgiven by the federal government if you still owe money at the end of your repayment period. But when you consolidate your loans, you begin a new repayment period which may push out your original repayment date by several more years.

Should I consolidate my student loans or refinance them?

Deciding whether to consolidate your loans or refinance them is a personal decision. Before you choose what to do, take stock of all your loans and carefully weigh your options.

Student loan refinancing may be ideal for you if:

  • You have both private and federal student loans and want to roll all of your loan balances into one new loan.
  • You want to remove a cosigner from your loan.
  • You want a lower interest rate to save money as you repay your loans.

Federal student loan consolidation may be ideal for you if:

  • You only have federal loans
  • You’re happy with the interest rate you’ve received from the federal government.
  • You’re eligible for Public Service Loan Forgiveness (PSLF) and intend to take advantage of that benefit in the future.

Interest rates fluctuate over time, so, with refinancing, you may be able to get a lower rate on a new loan today than you received when you took out your loans in the first place. It’s wise to check the rates available to you and calculate how much you could save in interest long-term by refinancing—you may be surprised by how much it adds up over time.

See how much you could save with Earnest

If you’re looking to simplify your student loan payments, refinancing your student debt into a single new loan can make the process a bit easier—and less stressful than managing accounts with multiple lenders. Refinancing your student loans with Earnest could also potentially save you thousands of dollars in interest payments over the life of your loan. Check your interest rate with Earnest today to see how much you could save by refinancing. It only takes about two minutes and won’t impact your credit score.


*Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for total cost of your refinanced loan.

**You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from an active checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.

***Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

****You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-drive Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other determent and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 47 states Earnest Operations LLC is authorized to lend in (all but Delaware, Kentucky, and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.

 Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

 © 2022 Earnest LLC. All rights reserved.

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.