Dealing With Student Loans: Refinancing and Consolidating Debt

This seems to be the new reality for millennials in the United States. In order to get a well paying job, you have to go to college. To get through college, you have to take on massive amounts of debt. Finally you have that well paying job, but instead of chasing your American dream of owning a home or starting your own business, you’re essentially saddled with student loan payments so big they could easily outpace your living expenses. By the time you’ve graduated and realized just how much debt you’ve amassed, it can feel crushing and nearly impossible to dig yourself out from beneath it. However, you do have some options.

Take Stock of Your Loans

Before you can determine a plan to deal with your student loans, you need to take stock of the loans you have, their interest rates, and whether they are federal or private loans. It’s important to identify which loans are private and which are federal since there are different options available to you depending on what type of loan you are working with. The easiest way to assess which federal student loans you have outstanding is to sign into Here you can view your federal loans, their terms, and estimate your timeframe for repaying your loan. To take stock of your private loans, you can pull your credit report for a list of the your outstanding loans. You are entitled to pull your credit report for free annually via

Private Loans

Once you have a good idea of what loans you have outstanding, you can begin to develop a plan to tackle those loans. When it comes to private loans, you typically have the option to refinance or consolidate your loans. Refinancing is when you voluntarily engage a private lender to pay off your original loan in order to reissue a loan to you on their new terms. This can be a great tool to lower your interest rate or monthly payment on a specific loan. You will need to research different lenders, their respective rates, repayment terms, and apply to the lender with your request to refinance. Your best chance of being approved for refinancing at a better rate is if you have a decent credit score (mid-600’s and up), a stable career/income, and a low debt-to-income ratio (the lower the better). The other option for private student loans is to consolidate them. This is basically a logistical move in which a company will take on all of your loans so that you will only have to make one monthly payment to them instead of paying each loan individually. I typically advise against consolidating private loans as the interest rate usually isn’t lower and there are often fees associated with consolidation that can add up over time.

Federal Loans

In the case of Federal loans, you typically will have some additional options for repayment that don’t exist for private loans. The first of these are income-driven repayment options which can help by lowering your monthly loan payments if they are disproportionately high compared to your income. There are four different types of income-driven repayment options available through the federal government, and you can learn more about them/apply for them hereThis is a phenomenal option if you qualify. The basic idea is that your loan payments will be tied to your income. Therefore, you will have smaller payments due when you are just starting your career and earning a much smaller wage. As your income grows and your ability to repay your loans grows, your payments will increase. Overall, this can be very helpful in getting off to the right financial start after graduating. The last thing you want to do is to default on your loans, and this gives you a risk-free chance to make your loans work with your income.

Loan forgiveness is another option if you have federal student loans. Loan forgiveness can come about if you enter into some civil service jobs (i.e. teaching in low income areas). While cases where this can apply are less common, it’s a great option if you’re open to your employment possibilities. For both income-driven loan repayments and loan forgiveness of federal loans, you may be required to consolidate your loans in order to enter into the program. In these cases, consolidation is just a formality that you shouldn’t be alarmed about. Lastly, if you don’t qualify for loan forgiveness or income-driven repayments, refinancing can also be considered for federal loans.

The Bottom Line

There is hope! You can work your way out from under these loans. Consider the type of loans you have and what your options are for each. Work to get your rates as low as possible, avoid defaulting, and attack your loans with everything you have. You will be free before you know it!

Written By: Lindsay Dell Cook

Lindsay Dell Cook is a CPA, finance writer, and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband and adorable daughter. When she's not working, she enjoys spending time with her family, taking their lovable mutt for walks, or reading a good book while buried under a pile of cats.