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Contrary to popular belief, federal student loan refinancing and federal student loan consolidation aren’t one and the same. Although the two terms are often used interchangeably, they refer to two very distinct things. If you are having trouble repaying your federal student loans or would simply like to know what to do if you end up in such a fix, it’s important to learn the distinctions between these two popular options. While refinancing often seems to be the best option, there are many good reasons to consider loan consolidation instead. Learn the basics about federal student loan consolidation by reading on below.

Federal Student Loan Consolidation versus Refinancing: What’s the Difference?

You can’t make the right decision without having your facts straight, so the first step is understanding the differences between loan consolidation and loan refinancing. With federal student loan refinancing, you can often save money by taking out a new loan with a lower interest rate and then using that loan to repay your federal student loans. With federal student loan consolidation, on the other hand, you convert one or more federal student loans into a single, new federal Direct Consolidation Loan.

Loan Consolidation won’t Necessarily Save You Money

If your chief concern is saving as much money as you can while repaying your loans, you may be surprised to learn than federal student loan consolidation is probably not the answer. When you refinance a student loan, you can often do so with a lower interest rate. The other terms of your loan most often remain largely unchanged. A lower interest rate over the same loan period can translate into significant savings.

Loan consolidation is different. When your loans are consolidated, the resulting new loan typically has a longer term, as you are “starting from scratch.” As a result, you may end up paying more in interest charges.

If federal student loan consolidation often costs more, why do it? For one thing, it’s a way to get out of default. If repaying the loan in full or opting for loan rehabilitation aren’t options, you can consolidate your loan and then sign up for an income-based repayment plan. You can also put your loan in forbearance or deferment. Please keep in mind, however, that these options don’t change the default status of the loan, and it will still be reported as in default on your credit report.

You might also choose loan consolidation if your existing student loans aren’t eligible for repayment or forgiveness options. Only federal direct loans are eligible. You can find out which types you have by logging into your Federal Student Aid account at After consolidating them, the new resulting loan should help you become eligible for such options.

Don’t Pay a Dime to Consolidate Your Federal Student Loans

As you’re probably already aware, there are tons of companies out there that will help you consolidate your federal student loans. It’s easy to assume that you have to use such services, but that’s not the case at all. Save yourself some money by doing it yourself through your Federal Student Aid account, where you can fill out an application to do so online. By handling it this way, you won’t needlessly waste money by paying fees for something that you can easily handle yourself.

Falling behind on your student loan repayments is extremely stressful. Loan consolidation may be a way to resolve the issue, but you need to make sure that you understand how it works before taking the plunge. Chances are that loan consolidation will work better for you than refinancing, so don’t inadvertently choose the latter without understanding the implications.