Consolidating default student loans

Posted by / 19-Oct-2017 01:03

In short, the term “consolidation” is used to describe the process of combining multiple loans into a single loan while the term “refinancing” is used to describe the process of using a more advantageous loan to repay an older loan.

While refinancing is often used in other realms of finance (like mortgages) to describe repaying a single older loan with a new loan, consolidating with a private loan technically includes refinancing as well since the term and interest rate of the new loan are different from the old loans.

The following table illustrates how a weighted average works.

In this example, there are three students that each have three loans.

We then detail a step-by-step guide to using and choosing consolidation loans.


Private and federal loans can both be refinanced with a private consolidation loan.

Some lenders require that the borrower’s debt-to-income ratio be below a certain threshold.

Many lenders also factor in a borrower’s employment stability and prospects – they may even have minimum annual income requirements.

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Getting a federal consolidation loan isn’t usually considered as “refinancing” since the interest rate of the new loan is equal to the weighted average of the loans being consolidated.