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Bottom Line Up Front

  • Refinancing means you pay off one or more loans with a new loan to get a lower payment, new terms and/or a better interest rate.
  • Consolidating means you combine multiple loans into one new loan, so you pay only one interest rate and have only one payment.
  • Shop around for the best interest rates and terms, because even a small reduction in your rate can translate to thousands of dollars in savings over the life of your loan.

Wishing you could save money and have more flexibility in your budget? If you’re paying on a student loan, there’s a great opportunity to lower your interest, lower your payment or both. How? You could refinance or consolidate your student debt. They may sound like they’re the same thing, but they’re actually a little different. Let’s look at how each works.

Student Loan Refinancing

Some people wish they could pay off their student loans faster. Others want to reduce the amount of interest they’re paying, and still others want to lower their monthly payments. All these goals may be achievable with student loan refinancing. Refinancing means you’ll use a new loan to pay off one or more of your student loans. You should know, however, that student loan refinancing is only available through private lenders (e.g., bank, credit union).

Do your research and shop around to find the best interest rate and terms (how long you have to repay your loan). Even a small difference can save you thousands of dollars over the life of your loan. (For example, members who refinanced over $25,000 in student loans with Navy Federal saved an average of about $8,000 over the life of the loan.)* Generally, the payment on a loan with a shorter term will be larger than one with a longer term.

And, you should know that while you may be able to refinance both private and federal student loans, the perks from your federal loans (e.g., income-based repayment and forgiveness options) will no longer be available after refinancing.

Student Loan Consolidation

The idea behind consolidating student loans isn’t too different from consolidating other types of loans. It’s simply combining multiple student loans into one single new loan. That way, you’ll be paying just one interest rate, and you’ll only have to keep track of one payment—instead of several.

Before you get started, though, consider the types of student loans you have, because consolidating federal student loans is different from consolidating private student loans.

  • Consolidating Federal Student Loans. If you have multiple federal student loans, once you’ve graduated, you can apply for a Direct Consolidation Loan through the federal government. Your new interest rate will be the weighted average of the rates of the loans you’re consolidating. One downside of a Direct Consolidation Loan, however, is that you can only use it for your federal student loans. You can’t add any private student loans you have.
  • Refinancing and Consolidating Multiple Student Loans. If you have multiple private student loans or both private and federal student loans, you can consolidate them with a private loan consolidation from a private lender. The interest rate will be based on your credit history instead of the rates on your current loans. So, it’s important to review your credit history before you apply.

Is your goal to lower your monthly payment? Two things to consider before you move ahead are (1) how long it will take to pay off your new loan and (2) how much interest you’ll pay over the life of the loan.

Before you include federal student loans, check whether you’ll lose any federal loan benefits like the examples we used above. That way, you can decide if a lower payment or the savings from a lower rate outweighs what you’d lose.

Also, make sure your financial institution is still offering the option to refinance your federal student loans right now, especially in light of the government's pause on federal student loan payments and interest through Jan. 31, 2022.

Comparison Chart 

Refinance and Consolidation Comparison Chart

What it is Interest rate Federal loan protection availability When to consider
Refinancing a Student Loan: Pays off a private student loan with a new private student loan at a new rate and with new terms 

Based on your credit history

Lenders typically offer a choice of either fixed or variable rates1


You want to save interest, lower your monthly payment or pay off your loan faster

Interest rates have gone down and/or your credit has improved

Refinancing and Consolidating Multiple Loans: Pays off and combines multiple private student loans, federal student loans or a combination of both into a single new private loan

Based on your credit history

Lenders typically offer a choice of either fixed or variable rates1


You want to have just one monthly payment

You want to combine both federal and private student loans into one loan

You have more than one private student loan and interest rates have gone down and/or your credit has improved

Federal Direct Consolidation Loan: Combines multiple federal student loans into a single new federal loan

The weighted average of your old loans’ rates

The federal government offers only fixed-rate loans1

Yes (e.g., income-based repayment and forgiveness options) You have several federal student loans and want a single payment and interest rate


Take Control of Student Debt

Simplify your life and give your budget a break. Learn how you can refinance and consolidate your student loans at Navy Federal Credit Union.

* The overall average savings claim is based on a review of refinanced loans greater than $25,000 that were disbursed between February 24, 2020 and August 31, 2020. The calculation is derived by subtracting the average interest after refinancing from the average interest prior to refinancing. The calculation for interest after refinancing includes the 0.25% autopay deduction, if applicable. The overall interest savings may result from a lower interest rate, a shorter term or both. Individual borrower savings may be different.

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.