If you are one of the 45 million borrowers in the United States struggling to pay down a total of $1.52 trillion in outstanding student loan debt, you might be looking for ways to relieve the burden. Refinancing and consolidation are two strategies that might lower your monthly student loan payments.

A Direct Consolidation Loan allows a borrower to combine all of their separate federal student loans into one monthly payment. And refinancing allows a borrower to combine one or more federal or private student loans into a new private loan with a single monthly payment.

Consolidating Your Federal Student Loans to Lower Your Payment

Although the terms consolidation and refinancing are used interchangeably when it comes to student loans, consolidation can refer to a specific federal student loan program. Specifically, a Direct Consolidation Loan is a federal loan program designed as a way to combine several outstanding federal student loans into one. The funds from the Direct Consolidation Loan pay off all of the existing federal loans.

The interest rate on the new loan is calculated as the weighted average of the rates on each of the loans included in the consolidation. As a result, your overall interest rate won’t change – so you won’t be saving money on interest charges.

During the consolidation, however, you are able to choose a loan term that can range from 10 to 30 years. You can lower your loan payment by extending the loan maturity.

For example, choosing a 25-year term instead of your current 15-year term will lower your monthly payment. Over the life of the loan, however, you’ll end up paying a lot more in interest. The main benefit of consolidation is that you only make one monthly loan payment rather than making payments on multiple student loans each month.

Refinancing Your Student Loans After You Consolidate

Once you have a Direct Consolidation Loan, it is still possible to refinance your consolidation loan at a later time. When refinancing with a private lender, you can include any private or federal student loans.

The lender issues a new loan with new terms and a new interest rate, and your old student loans get paid off with the proceeds from the new loan. If you have good credit, you may be able to get a lower interest rate than the rate you are currently paying on your consolidated federal student loan. So refinancing can be a way to lower your monthly student loan payments.

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Risks to Be Aware Of

Refinancing your consolidated federal student loans, however, does not come without risk. When you refinance your federal consolidated loan with a private student loan, it will no longer be eligible for public service loan forgiveness programs.

Private lenders tend to not offer flexible repayment alternatives such as income-sensitive payments or longer maturity terms. In addition, federal student loans have a considerable amount of flexibility when borrowers experience financial hardship. Federal student loans offer deferment, forbearance, and loan rehabilitation options that private lenders do not have.

Private lenders can be fairly selective in the applicants they choose to approve for student loan refinancing. Each lender has different credit and employment requirements for borrowers in addition to minimum and maximum loan requirements for refinancing. Before applying to refinance your student loans with a private lender, check to make sure you meet those guidelines.

Making the Best Choice to Lower Your Payments

If you have federal student loans that you have not previously consolidated, consider how you may be able to lower your monthly payments with a Direct Consolidation Loan. Extending your loan term to 30 years lowers the required monthly payment.

Although you will pay more interest over the life of the loan, you can also help reduce that by paying more than the minimum payment whenever possible. Even making one extra payment a year can greatly reduce the total interest paid. You can also retain the benefits offered to borrowers by the federal government.

If you have already consolidated your federal student loans and are still looking for a way to lower your student loan payments, you may want to consider refinancing your student loans. Refinancing can be particularly beneficial if you have excellent credit and have been employed for several years.

In this case, you may qualify for a lower interest rate than the rate you are currently paying on your federal student loans. Refinancing can also be a good option if you want to combine both federal and private student loans into one monthly payment.