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Let’s start with a setting the record straight on a common misconception – Student loan consolidation is not the same as student loan refinance. Although both programs involve changing loan terms or interest rates, the similarities end there. Consolidation and refinance are in fact two distinctly different options.
When Consolidation May Be the Better Option for You
Consolidation can help you if you are struggling with keeping track of the payment dates and amounts every month. By consolidating your loans, you only have to keep track of one payment date and one amount every month, reducing the stress as well as the odds of defaulting on your payments. When you consolidate your loans, you may end up paying around the same rate of interest on the consolidated loan as you did on the individual loans.
Upshot: Consolidation may be better for you if you are just looking for a way to simplify your loans.
When Refinance May Be the Better Option for You
When you refinance your loan, you are combining your existing loans and taking out a new loan to pay off your existing outstanding. This means you will lose out on all benefits associated with your original loans, including loan forgiveness. If you are planning on taking advantage of the forgiveness program, you should not consider this option.
Upshot: Refinance may be better for you if the new loan comes with a lower rate of interest, which lowers your monthly payments as well as the total amount you have to pay back over the life of the loan. Before you decide on refinancing, you must weigh its pros and cons against what you stand to lose by way of forgiveness. If you meet the eligibility for the forgiveness program, that is might be a better option.
