Consolidation vs. Refinance?

What is the difference between the two?

What is the difference between federal “consolidation” and private loan “refinance”?

A Direct Consolidation Loan from the federal government allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment for your federal student loans at one interest rate instead of multiple payments.

Refinancing your student loans involves working with a private lender like your credit union. This lender will pay off your existing loans (which may include private and federal loans) and combine them through consolidation. You will then make a single loan payment to the new private lender.

Federal Direct Consolidation Loan

  • A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. There is no cap on the interest rate of a Direct Consolidation Loan.
  • Is free through the federal government. You can apply for a Direct Consolidation Loan through
  • Private loans cannot be consolidated
  • A Plus loan made to the parent of a dependent student cannot be passed on to the student during the consolidation
  • Repayment term can be readjusted between 10-30 years

Keep in mind that by consolidating your federal student loans, you may lose certain borrower benefits from your original loans.


  • Interest rate may be fixed or variable, and is based on your financial and credit history
  • Refinance and combine both federal and private loans into one payment (this option may vary by credit union for Student Choice refinance loans)
  • You could potentially experience a reduction in your interest rate.
  • Federal repayment programs such as income-based repayment, unemployment deferment, loan forgiveness program will no longer be available.