Study CANADA USA; How to Refinance or Consolidation Your Student loans

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Student loan refinancing vs. consolidation
Study USA CANADA: How to Refinancing or Consolidation your Student loan

What is student loan refinancing?

Student loan refinancing is the process of taking out a new loan to pay off your existing student loans. When you refinance your student loans, you may qualify for a lower interest rate and a different repayment timeline, which could help you save money on interest or lower your monthly payments.

Refinancing is a good idea for people with a large monthly payment or a high interest rate, since refinancing into new terms can make loans more affordable in both the short- and long term. Borrowers with good credit, in particular, will qualify for the best rates and terms. You can refinance both federal and private student loans, though it’s usually best to avoid refinancing federal loans, since they come with a number of perks that aren’t available through private lenders.

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What are the requirements to refinance student loans?

Once you find a lender that best suits your financial situation, check the specific refinancing requirements. These can vary from lender to lender, but here are a few general criteria to be aware of:

  • Debt-to-income ratio: Your debt-to-income ratio is a measurement of how much debt you’ve accumulated in comparison to your monthly earnings. You have a better chance of getting approved if your debt-to-income ratio is below 43 percent.
  • Credit score: When you apply for any loan, your credit score has a large impact. Check your lender’s credit score requirements before applying. If your credit score is in the mid-600s or lower, you may need to add a co-signer to your loan in order to qualify.
  • Income: Lenders may impose a minimum income threshold, and they will likely want to see proof of employment — this tells them that you have the cash to make your monthly payments.
  • Refinancing amount: You will likely need to have a minimum of $5,000 in student loans outstanding if you’d like to refinance. If you have less than that, most lenders won’t work with you.
  • Degree: You’ll typically need a degree to be eligible for student loan refinancing, though some lenders accept borrowers regardless of degree status.

If the lender you’re considering offers a prequalification tool, you can see your estimated rate based on your general financial history with a soft credit inquiry, which won’t hurt your credit score.

Learn more: Requirements for student loan refinancing

Should I refinance my student loans?

Refinancing your student loans makes financial sense only if the loan you apply for has a lower interest rate than the current interest rate of your student loans. You can use a loan calculator to determine your current monthly payment versus that of the loan you’re considering. While you may decide to refinance to a longer term in order to lower your monthly payments, keep in mind that both a longer term and a higher interest rate will increase the amount of money you pay.

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Whether or not you should refinance also depends on what type of loans you have. Refinancing could be a good idea if you have private loans, but you’ll lose benefits if you refinance federal loans. These benefits include:

  • Income-driven repayment plans.
  • Loan forgiveness programs.
  • Deferment and forbearance options.
  • Waived interest and payments due to the coronavirus pandemic.

Learn more: Should you refinance your student loans now?

How to refinance student loans

If you’re considering refinancing your student loans, here’s how to start the process:

  • Check your credit score. Many lenders require good credit for you to refinance your loans. If you see that your credit score is on the low side (i.e., below 650), you can take steps to improve it or look for a qualified co-signer.
  • Shop around. Whether you’re refinancing federal or private student loans, one of the most important steps you can take is to shop around. Check with multiple lenders and research student loan refinancing rates to ensure that you’re getting the best deal possible.
  • Choose a loan offer. Lenders that approve you should offer you a variety of repayment options to choose from, which will impact your monthly payment and how much you pay on your loan overall. Select a loan offer that matches your budget and goals.
  • Send in an application. While some lenders will let you check rates using a simple application form, you’ll eventually need to submit a full application. You’ll need details about your existing loans, as well as documents verifying your income and other financial details. At this point, you’ll go through a hard credit inquiry. Once all of your details have been verified, the lender will either pay off your former loans or send you the funds directly. Payments begin as soon as funds are disbursed.

What is the difference between student loan consolidation and student loan refinancing?

Student loan consolidation is the process of combining federal student loans into one federal Direct Consolidation Loan. This gives you a fixed interest rate based on the weighted average of your current loans’ interest rates, and you won’t lose federal protections.

Student loan refinancing is the process of taking out a new loan with a different interest rate and different terms to pay off your existing loans. You can refinance both federal and private loans, but the process must be done with a private lender.

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Learn more: The difference between student loan refinancing and consolidation

Pros and cons of refinancing student loans

Before choosing a lender, consider whether refinancing your student loans is the best move for your current situation.


  • You can consolidate several student loans into one, which means you can make just one payment each month.
  • You may be able to secure a lower interest rate.
  • Refinancing to a longer repayment period gives you a lower monthly payment.


  • Private lenders usually require good or excellent credit (or a co-signer) to qualify for a new loan with their best rates and terms.
  • You give up federal protections like deferment, forbearance and income-driven repayment plans when you refinance federal loans with a private lender.
  • You’re locking yourself into another repayment plan.

How to choose between a fixed-rate and a variable-rate loan

Most private lenders will let you refinance with either a fixed or a variable interest rate. With a fixed rate, your interest rate will never change, meaning your monthly payment will remain consistent. With a variable interest rate, your interest rate can fluctuate month to month based on market conditions.

The choice between a fixed or variable rate comes down mostly to your risk tolerance. If you value predictability in your finances, a fixed rate is a better choice — particularly if you can lock in a low rate. You do have the chance to save more money with a variable interest rate if interest rates fall, but the inverse is true as well; it’s possible that interest rates could rise during your repayment term, costing you more money overall unless you can pay off your loan early.

Learn more: Fixed vs. variable rate student loans

Can I refinance my student loan with bad credit?

It is possible to refinance your loan if you have bad credit, though the process will be more difficult. Most lenders require a credit score in the mid-600s, and even if you do qualify, you’ll likely see higher interest rates. If this is the case, refinancing ultimately may not be worth it. Before applying for a student loan refinance, check your credit score to know where you stand and compare that against lenders’ listed credit requirements.

How to refinance with bad credit

If you’re looking to refinance your student loan with bad credit, keep the following considerations in mind:

  • Shop around: Shopping around with at least three lenders is the best way to determine which lender is best for your situation. You’ll get higher rates if you have bad credit, but some lenders are more forgiving than others.
  • Improve your credit: Where possible, work on improving your credit score before submitting your application. Try to pay off as much debt as possible, pay your bills on time and avoid any other loan or credit card applications prior to applying for your refinance loan.
  • Apply with a co-signer: If you have a friend or family member who is willing to co-sign your loan with you, you could get a break on your rate — particularly if that person has excellent credit.
  • Improve your cash flow: Lenders check your debt-to-income ratio when considering your application. To have a better chance at qualifying, pay down as much debt as you can before applying or find ways to supplement your income.

How to pick the best student loan refinancing company

To find the right lender for you, compare at least three student loan refinancing companies. Start by getting prequalified to see which lenders offer you the most affordable loan and compare repayment terms to ensure that the timeline works for your budget. Also check for hidden fees, including application fees and late fees.

While rates and terms are important, you should also consider any unique features or perks, like deferment options or available discounts. These features could help you decide between lenders that offer similar rates.

Should you refinance student loans during the coronavirus pandemic?

It’s not the best idea to refinance your federal loans now, since interest and payments are currently waived on federal student loans through Jan. 31, 2022; by refinancing your federal loans, you would be required to make payments with interest and lose the ability to take advantage of any future federal relief programs.

However, the Department of Education has stated that this will be the final extension of the forbearance period, so it may be smart to use the next few months as a trial period; even if you don’t make the payments, set aside your usual loan payment every month to see how it affects your budget. If you find that your current financial situation does not support your federal student loan payments, you can reevaluate whether to refinance once payments start again in February.

If you have private student loans, there is little downside to refinancing if you can qualify for a lower rate. Interest rates are currently at record lows, and they’re likely to only rise from here as the economy starts to recover – so locking in a fixed rate now could be a good option.

Learn more: Should you refinance your student loans during the COVID-19 pandemic?

The most valuable college majors

Paying off your student loans can be a challenge if you’re pursuing a career with a low income; according to a Bankrate study of the most valuable college majors, STEM majors topped the list as the most valuable in terms of median income, unemployment rate and need for an advanced degree, while arts degrees came in at the bottom:

1. Architectural Engineering$90,0001.3%
2. Construction Services$80,0001%
3. Computer Engineering$101,0002.3%
4. Aerospace Engineering$100,0001.9%
5. Transportation Sciences and Technologies$86,0001.8%

If your major doesn’t have a high return on investment and you’re struggling to make loan payments, refinancing could help you avoid falling behind. You can use a loan calculator to determine what term length and interest rate would get you the best monthly payment relative to your income.

Details: Student loan refinance rates in 2021

The best student loan refinancing companies offer competitive interest rates and fees for qualified buyers. These companies also offer helpful resources on their websites, as well as the ability to apply for student loan refinancing online. Compare each of these lenders’ loan terms and limitations before you apply.

  • Best overall student loan refinance company: SoFi
  • Best student loan refinance company for flexible repayment options: Earnest
  • Best student loan refinance company for students in health care: Laurel Road
  • Best student loan refinance company for forbearance protection: CommonBond
  • Best student loan refinance company for available discounts: Citizens Bank
  • Best student loan refinance company for comparing multiple lenders: LendKey
  • Best student loan refinance company for no fees: College Ave
  • Best student loan refinance company for low rates: Splash Financial

Understanding student loan consolidation

Following graduation from college or university, you may be one of the thousands of students facing loan repayment. Up to 60 percent of the cost of your education may have come from federal student loans administered by the Canada Student Loan Program. If you needed more financial assistance, you may have explored provincial or territorial loans. Finally, you may have accumulated private loans and lines of credit offered by banks to help you meet the costs of your education.

It’s paramount that you know where your loans came from so that you can be prepared to repay them in a timely fashion. You may receive correspondence from the government regarding student loan consolidation, and it’s also important that you understand that process and what it means to you.

Which student loans are consolidated?

The possibility of Student loan consolidation depends on the province or territory in which you live. If you took out both federal and provincial loans, they will automatically consolidate if you live in:

  • New Brunswick
  • Newfoundland and Labrador
  • Ontario
  • Saskatchewan

These provinces allow you to apply for both loans with one application, and after graduation, they consolidate the student loans via the Integrated Student Loans program. You’ll pay only one loan to satisfy both debts.

There are some provinces and territories that only offer one type of loan, either federal or provincial/territorial, so you’ll only have one loan to repay anyway. These include:

  • Nunavut
  • The Northwest Territories
  • Quebec
  • Yukon

In all remaining provinces, you could apply for both federal and provincial loans with one application, but these student loans will not be consolidated upon graduation. That means you’ll have to be sure to repay each loan separately. This is the case if you live in:

  • Alberta
  • British Columbia
  • Manitoba
  • Nova Scotia
  • Prince Edward Island

When do I start repaying my student consolidation loans?

You have a grace period following graduation before you have to start repaying your government loans whether they are consolidated or not. This grace period lasts six months. In that timeframe, you’ll receive paperwork regarding your loans so you know how much you owe, how much interest you’re paying and where to send payments. Take note that interest starts accumulating upon graduation.

Can I consolidate private student loans?

In a manner of speaking, you can consolidate private student loans held with a bank. For example, if you took out a loan or line of credit from another institution but found that CIBC had a more competitive interest rate, you could apply for the Education Line of Credit to satisfy those debts. To determine whether you’d be eligible for this, you’ll want to speak to a CIBC advisor at 1-866-525-8622.

Tools and advice

Different Types of Canadian Student Loans

First, it’s important to understand there are three types of student loans in Canada:

  1. Federal loans – fixed or variable rate government loans offered through the Canada Student Loan Program (CSLP).

  2. Provincial loans – specific to each province or territory, with varying interest rates.

  3. Private student loans or lines of credit – these are obtained through banks or other lenders if the federal and provincial loans aren’t enough to cover tuition; these often have higher interest rates.

In some provinces, federal and provincial loans will be consolidated or integrated automatically upon graduation so that you only make one payment that goes toward paying off both loans. In other provinces, however, they are not consolidated – so you must be sure to repay both.

CIBC has a comprehensive list you can check out here to learn which provinces automatically consolidate your federal and provincial loans when you graduate. Private loans, however, will never be automatically consolidated.

How Does Student Loan Consolidation and Refinancing Work?

While the terms are often used interchangeably, student loan refinancing and student loan consolidation are different.

  • Refinancing is paying off one single loan with a new one that has a lower interest rate or better terms.

  • debt consolidation loan (or, in this case, a student consolidation loan) involves combining (i.e. “consolidating”) multiple debts or loans into one new loan set at a lower interest rate or better terms. For example, if you have a federal loan, a provincial loan, and a private loan, which make up your total school loan debt amount, you may try to find another lender that will combine them all into one new loan set at a lower interest rate. 

Graduates may want to consider either refinancing their school loan or obtaining a student consolidation loan if they have:

  • Made some on-time school loan payments already, showing potential lenders that they’re reliable
  • A good credit score (read more about credit scores here)
  • A stable and well-paying job
  • A cosigner with good credit and/or a good job

In Canada, refinancing or consolidating student debt into a private loan is uncommon (at least, compared to our neighbours to the south who may see offers in the mail to refinance their school loans about twice a week). Doing so could create a loophole in the bankruptcy protection rules that require an individual be out of school for seven years before their school loans can be included in a consumer proposal or bankruptcy proceeding.

The closest most Canadian student borrowers would be able to get to refinancing would be if they remortgaged their home and used the money to pay off their student debt.

Some graduates who are able to secure a student debt consolidation loan may also use it to pay off other unsecured debts, like credit cards or payday loans. However, there are some risks in doing so if they continue to use their credit cards. It’s often extremely difficult (especially for a recent graduate) to keep up with monthly credit card payments and the new loan payments.

Disadvantages of Student Loan Refinancing or Using a Debt Consolidation Loan

While student debt consolidation or refinancing may benefit you if you’re getting a better deal on a loan from a private lender (creating a kind of private student loan), there are disadvantages transferring federal or provincial loans to a private lender:

  1. You will owe a bank, not the government. If you keep the loan with the government, you may be eligible for student loan debt help programs that wouldn’t be available to you if you went to a bank or other lender. You can read more about these programs and your eligibility on the Government of Canada website.

  2. You will lose tax deductions. Interest on student loans is tax deductible, offering you annual savings that wouldn’t be available with a private student loan from a bank. 

  3. You will likely be charged a higher interest rate. You may like the idea of managing just one monthly payment, but if you have poor (or no) credit history, the bank’s interest rate and fees for student loan consolidation will likely be higher than the interest rate the government is charging you on your debt.

  4. You will pay more interest over time. While student loan consolidation may lower your monthly payments by stretching them out over a longer period of time, that could mean paying more interest over time. Plus, having private student loans hanging over your head for 20 years could potentially hinder your ability to buy a home, get an auto loan, or other financial services.

Consider All Your Student Loan Debt Help Options

Don’t want to consolidate student loan debt with a private bank or just want to investigate some alternative options before going with school loan consolidation? There are a few alternatives to getting a consolidation loan with a private lender, including:

Student Loan Repayment Assistance

Before considering student loan consolidation or refinancing, graduates should investigate other forms of debt help that may be available to them through the government.

For example, if you’ve maxed out your six-month grace period and simply can’t afford to make payments, or if you’ve begun the repayment process but have fallen behind, you can apply for a Repayment Assistance Plan (RAP). RAPs might be able to reduce your loan payments or halt them entirely depending on your financial situation. You can learn more about RAPs, your eligibility, and how to apply by clicking here

A Debt Consolidation Program

Taking out a loan to pay off another loan isn’t always a strategy for success. Thankfully, there’s another option: A Debt Consolidation Program (DCP) with a non-profit credit counselling agency, like Credit Canada. 

A Debt Consolidation Program doesn’t involve taking out a loan. Instead, it’s an arrangement where a certified Credit Counsellor will negotiate with your creditors to stop or reduce the interest on your debt. They will also roll all your unsecured debts (i.e., credit card debt, outstanding cell phone bills, payday loans, etc.) into one lower monthly payment. 

But there is a caveat when it comes to student loans—often, the loan must already be in collections for it to be included in a Debt Consolidation Program. Additionally, the Federal portion of your student loans would not pause interest — though any provincial loans may pause interest if added to a DCP.

However, even if your student loan debt cannot be included, your other unsecured debts can, which can make paying back your school loan more manageable. 

Budgeting and Money Management Skills

Maybe instead of consolidating debt, all you need is just some financial coaching. Credit Canada has certified Debt Counsellors who can work with you to help you achieve your financial goals while developing better money management and budgeting skills. 

In addition to student loan debt advice, they can also show you how to make your money work for you through budget planning and expense tracking. In fact, there’s even a free Budget Planner + Expense Tracker tool that you can download now.

How Do I Know if My Student Loan Is in Collections?

If you don’t know whether your account has already gone to collections, you can call the following government offices to obtain that information:

  • Provincial Student Loans: Collection Management Unit for the Ministry of Finance, 416-326-0500

  • Federal Student Loans: CRA Collections Service—Canada Student Loan Centre, 1-866-336-7565

Financial Advice for Graduates Is Just a Phone Call Away

If you’re a recent graduate, congratulations on your achievement! And if you’re struggling to pay off your school loan due to other debts, such as credit card debt and outstanding utility bills, we offer student loan debt help.

Even if a Debt Consolidation Program doesn’t end up being the right fit for you, we can still offer you free advice, tips, and referrals to help you get your finances back on track. Contact us online today or give us a call at 1.800.267.2272.

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