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The Pros and Cons of Student Loan Refinancing and Consolidation

Student loan consolidation and refinancing is often a wise financial move that can help you achieve freedom from debt and keep you from paying too much in interest. While these terms are sometimes used interchangeably they are two separate, but related, options for your student loans.

First, consolidation is when you combine multiple student loans into just one loan. This is a good option for borrowers who already have good rates and who are looking to simplify loans from multiple servicers. Borrowers with federal loans can consolidate through a government program.

Refinancing is when you take out a new loan under new terms — generally at a lower interest rate — and use that to pay off your original student loans faster or at better rates. Here’s when confusion can arise: part of refinancing includes consolidating your loans, if you’re refinancing more than one loan.

Check our student loan calculator to compare your rates.

If you’re on the fence about whether or not to consolidate and refinance your student loans, here’s a list of pros and cons to help you think it through:


You can pay back your loans on your own timeline.

Most lenders (including the government) require that you take a fixed five-, 10-, or 20-year repayment plan, but at Earnest, you can set your own term. With Earnest’s Precision Pricing feature, you can create a custom loan based on the monthly repayment budget that works for you, and get an APR prorated to exactly your timeline.

You can pay one bill a month instead of several. Carrying more than one loan can create payment-scheduling chaos. Simplify life by consolidating and refinancing your loans — both federal and private — so you have one monthly payment. At Earnest, you can schedule to pay it on the day of the month that works best with your cash flow.

You’ll save money over the life of your loan. Refinancing can mean saving money on interest as well as fees. Even a little bit of savings each month can add up to a lot, over the lifetime of your loan. At Earnest, we save our clients an average of $17,936.1

You’ll pay off your debt faster. Paying less in interest goes hand-in-hand with paying off your total debt quicker, because more of your payment will go toward the principal, bringing your interest amount down further each month. And who wouldn’t want to be done paying student loans sooner?

You can take control of your own payments. When you refinance and consolidate student loans with Earnest, you can skip a payment when finances are tight, make an extra payment if you have a windfall, and set your own payment due date. We never charge fees or impose penalties for letting you fit your payments to your budget and your life.

Pros and Cons


You could lose out on some federal loan benefits. If you have certain perks tied to your original federal loans (such as interest rate discounts, principal rebates, or some loan cancellation benefits) you could lose them when you consolidate or refinance your loans. However, consider if the positives of refinancing can outweigh the cost of losing those original perks.

If you only consolidate, you won’t get better rates. When you consolidate, your interest rate will be a weighted average of the interest rates on the loans you combine. It’s only when you also refinance that you can apply to get a better APR on your new loan.

Once you’ve consolidated and refinanced your loans, there’s no going back. Your original loans will be paid off, and you’ll be moving forward with the terms of your new loan. If you’re perfectly happy with your current loan repayment terms and don’t think you can save more money by taking this step, you may not see a need to refinance or consolidate.

1 Learn more about Earnest calculations in disclaimers available at

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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