When Susan Tellem consolidated her son's federal student loans, she was unaware that her decision meant she could not refinance them later when interest rates dropped.

After 15 years of paying high interest debt of 8.5%, Tellem was able to refinance them at 3.5% at SoFi, a San Franciso-based private lender.

"I'm very grateful," said Tellem, a Malibu, Calif.-based public relations and social media partner at Tellem Grody PR.

Learning the ins and outs of the process of repaying student loans is crucial before people agree to consolidate or refinance them.

Refinancing or consolidating student loans is rising in popularity as students are accruing more debt to pay for their four-year undergraduate college degrees. The Federal Reserve Bank of New York's Center for Microeconomic Data reported that there is $1.36 trillion of student loans through the third quarter of 2017, which means 45 million student loan borrowers are caught in the trap of managing massive education loans along with credit card debt and car loans.

Refinancing your student loans depends largely on how high your credit score is -- the average borrower who was approved for refinancing had a FICO credit score of 764, according to a report from LendEDU, a Hoboken, N.J. lender, which analyzed 30,000 student loan refinancing applicants from 2017.

The report also found that 58% of all applicants were denied for student loan refinancing compared to 43% in 2016 and the average interest rate received was 5.56%, compared to 4.82% in 2016. The average amount of student loan debt refinanced was $66,453, while in 2016 it was $53,892.

To qualify for refinancing, people need to have a good credit score in the 600s or higher and show they have a steady job or income, said Leslie Tayne, a Melville, N.Y.-based lawyer who specializes in consumer and business debt services.

Federal Loans

Before you merge all your federal student loans into one larger one, see if you qualify for interest rate discounts, principal rebates or some loan cancellation benefits. The government also offers four plans that are based on your salary -- Revised Pay as You Earn Repayment Plan (REPAYE Plan), Pay as You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan) and Income-Contingent Repayment Plan (ICR Plan).

If you choose to consolidate your federal loans, you will be making lower monthly payments, but the term of the loan might be extended. This means you might be paying for your federal loans for several extra years.

There are benefits as well as drawbacks to consolidating and refinancing student loans, said Megan Tutt, a wealth advisor at The Colony Group in Bethesda, Md.

"If you consolidate, you may qualify for an income-driven repayment plan," she said. "These repayment plans will help you avoid defaulting on your loans and hurting your credit score."

Consolidation is not always the best option, especially for recent graduates or those who are just entering repayment, said Jeremy Wine, a student loan supervisor at Take Charge America, a non-profit credit counseling, debt management and student loan counseling agency based in Phoenix.

In order to refinance federal student loans, you would need to change the federal student loan into a private student loan, which removes all the benefits such as income-driven repayment, forgiveness and discharge, postponement of payment and consolidation, he said.

Private Student Loans

Temporary options such as deferment and forbearance allow borrowers to delay making payments because they are unemployed or do not earn a steady income. Interest on the loans is still being accumulated.

Once you have exhausted those alternatives, refinancing your private loans should be considered.

In most cases, you can lower the interest rate and your monthly payments, which means you should be able to pay off your loans faster by shaving several years off.

"It's a good idea to consolidate your loans if your interest rates are variable or you need a lower monthly payment," said Joe DePaulo, CEO of College Ave Student Loans, a Wilmington, Del.-based private student loan company.

Refinancing means borrowers can combine private and federal student loans and just make one payment each month instead of paying several servicers, said Wine.