Refinancing vs. Consolidating Student Loans | Earnest | Earnest
Refinancing vs. consolidation: what’s the difference?
Both can simplify student loan repayment, but they work in very different ways. Learn how each option may fit your goals
)
Both combine loans, but only one could save you money
It’s easy to mix up refinancing and consolidation—they sound similar because both can combine multiple student loans into one new loan.
Here’s the difference:
You can consolidate your loans through refinancing, but it’s not the same as the federal Direct Consolidation Loan program.
Federal consolidation is offered by the U.S. Department of Education. It combines your federal loans into a single new federal loan with one monthly payment. Your new interest rate is the weighted average of your existing loans, so it usually doesn’t go down—but you keep access to federal benefits like income-driven repayment and forgiveness programs.
Refinancing is offered by private lenders (like Earnest). It can combine federal, private, or both types of loans into one new private loan. Depending on your credit and income, you might qualify for a lower rate or a new repayment term that fits your goals.
Both options give you one payment—but only refinancing offers the potential to save money or pay off debt faster.
Available for
| Refinancing | Consolidation | |
|---|---|---|
| Federal loans | Yes | Yes |
| Private loans | Yes | No |
Goal
| Refinancing | Consolidation |
|---|---|
| Lower your rate or monthly payment | Combine loans for easier management |
Interest rate
| Refinancing | Consolidation |
|---|---|
| Based on credit and lender | Weighted average of current rates |
Lender
| Refinancing | Consolidation |
|---|---|
| Private lender (like Earnest) | U.S. Department of Education |
Pros
| Refinancing | Consolidation |
|---|---|
| One payment, potentially lower rate, choose new term | One payment, keeps federal benefits |
Cons
| Refinancing | Consolidation |
|---|---|
| Lose federal protections | Rate usually stays the same |
Not sure which one’s right for you?
Pick what matters most to you to see which option might fit better
)
Option 1: I only want one payment
Federal consolidation could make sense if all your loans are federal and you just want to simplify.
- Keeps your federal benefits like income-driven repayment or forgiveness programs.
- Simplifies repayment with one monthly bill from the U.S. Department of Education.
- Pro Tip: Refinancing also gives you one payment—and the chance to save on interest—but it turns federal loans into private loans.
)
Option 2: I want to lower my rate or pay off my loan faster
Refinancing could help you save on interest and choose a new term that fits your budget.
- Replaces your existing loans with a new private loan at a potentially lower interest rate.
- Lets you choose your loan term—shorten it to pay off faster or extend it for lower monthly payments.
- Combines federal and private loans into one single payment with a private lender.
How borrowers use each option
)
Taylor
Taylor had five federal loans and wanted just one bill to track. They consolidated through the Department of Education and kept eligibility for federal repayment programs.
)
Jordan
Jordan had a mix of federal and private loans. Refinancing with Earnest lowered their rate from 7.5% to 5.3%, saving $180 per month.
)
Morgan
Morgan refinanced after grad school to shorten their loan term and become debt-free faster.
Your questions about refinancing and consolidation answered
- Can I consolidate private loans?
- Can I refinance a consolidated loan?
- Will I lose federal benefits if I refinance?
- Does refinancing hurt my credit?
Read our Borrower’s Guide to Student Loan Refinancing
)
Refinance with confidence
Check your personalized rate in minutes with no commitment and no impact to your credit score.