Should i consolidate my student loans calculator

When you refinance a student loan, a private lender pays off your old loan and issues you a new one with a new interest rate. Ideally, that interest rate will be lower and/or offer other benefits such as better payment terms.

Each lender’s method of determining your new interest rate is different. The lender may take into account your:

• FICO score
• income
• overall debt
• degree and career
• future earning potential

It's unlikely any two lenders will give you the exact same offer.

However, you’re especially likely to score a lower interest rate in two situations:

1. When your credit score is better now than when you took out your original loans, if you’re refinancing private loans.
2. When private lenders offer interest rates lower than federal interest rates. Many federal student loans have higher interest rates than the lowest rates offered by private lenders. The current rate for undergrad Direct Student Loans dispersed after July 1, 2022 is 4.99% and some older loans are around 7%. Current graduate and Parent PLUS loans are between 6-8%.

But some private lenders are offering interest rates under 4% on the low end. If you have good credit and can score a rate that low, you could save thousands by refinancing your federal loan with a private lender.

The government has its own alternative to refinancing with a private lender: loan consolidation. This allows you to lump all your small loans into one bigger loan which can make handling payments easier — which also makes it less likely that you accidentally miss a payment. But this option, won’t snag you a lower interest rate. Instead, your rate will be the weighted average of interest rates on all your loans, rounded up by 1/8th of a percent.

In plain English, that means sometimes consolidation may slightly increase your interest rate. 

Pro: You can reset your terms

Another good thing about refinancing is that you can reset the length of your loan.

If you're struggling to make your monthly payment now, you can stretch out the terms to lower your monthly payment.

Or, if you want to pay if off faster and save a ton on interest, you can opt for a shorter payment term. But be aware that will also increase your monthly payment.

Pro: You can replace multiple loans with a single loan

If you’re like many people, you have a number of federal and private loans with different lenders and servicers. This can present real logistical difficulties in keeping track of your loans, making on-time payments, and even knowing how much you owe.

Refinancing replaces multiple loans with a single loan so it’s much easier to keep track of payments and payoff timeframes. You only need to pay one lender, and you can easily see the status of your student debt at a glance.

Con: You lose federal protections for federal loans

The biggest potential drawback to refinancing federal loans is that you lose certain protections including deferment and forbearance options, loan forgiveness, death and disability forgiveness, and income-driven repayment plans.

If you’re worried about losing protections when refinancing a federal loan, some lenders do offer their own hardship programs. Make sure you look for them — and get the details on how they work — before you make a decision.

Con: You lose access to student loan forgiveness for federal loans

Another drawback to refinancing is that, when you refinance federal loans, you lose access to forgiveness programs including Public Service Loan Forgiveness.

This program forgives your loan after about 10 years of qualifying payments but it’s notoriously picky, even if you work for a qualifying employer. If you work in public service, it’s a good idea to do your homework sooner rather than later to make sure you’re on track to qualify. If not, it may be worth it to see if you can score a lower interest rate through refinancing.

If your federal loans are enrolled in an income-driven repayment plan, you could also be eligible for forgiveness after a period of 20-25 years, depending on the program. You'll lose access to that option if you refinance a federal loan.

Pro/con: Lender eligibility requirements will determine your interest rate

This is a pro if you have a good credit score. If you don’t, you may be better off sticking with the interest rate on your federal loan.

Lenders look at your FICO score, earning potential, degree, income, and other factors when determining the interest rate they'll offer you on a refinanced loan. As with any other loan, you’re not guaranteed a good interest rate.

If you’re not sure how attractive of a candidate you are, it can’t hurt to fill out applications with a few of your top lenders. It only takes a few minutes, you have no obligation to accept the offer, and most lenders will do a “soft pull” for your initial offer, which doesn't affect your credit score.

If the numbers aren't in your favor, you can spend some time improving your credit score and then apply again in a few months.

Is it better to consolidate student loans or not?

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Can my student loans be forgiven if I consolidate?

Does consolidating your student loans hurt your credit?