Is it possible for federal student loan borrowers to refinance their loans with the government? In a nutshell, yes. Your federal student loans are combined into one loan with a single monthly payment through consolidation. Learn about the pros and cons before you consolidate.
Consolidation may not be the right choice for all borrowers. Consolidation may not be the best option for you depending on your loan types, interest rates, and payment history.
Remember that once your loans have been consolidated into a Direct Consolidation Loan, the consolidation cannot be reversed. Learn what consolidating will mean for you before you consolidate.
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Multiple student loans are combined into one new loan through student loan consolidation, which should ideally result in cost savings, a lower monthly payment, or both.
Through the Department of Education, you can combine several federal student loans into a single federal loan. Alternatively, you can refinance your student loans, which is more widely known as exchanging several federal or private loans for a single new private loan.
While consolidating and refinancing may sound similar, there are a few important distinctions:
- Only federal student loans are eligible for consolidation through the Department of Education; it does not lower interest rates. However, you can extend the term of your loan to reduce monthly payments.
- Through a private lender, federal and private student loan refinancing is possible. A federal student loan that has been refinanced turns into a private loan and is no longer qualified for government programs like income-driven repayment or other loan forgiveness schemes.
Consolidation vs. refinancing
|
Student loan consolidation |
Student loan refinancing |
|
|---|---|---|
|
What does it do? |
Combines multiple federal loans into one federal loan. |
Combines private and/or federal loans into one private loan. |
|
Which loans can I combine? |
Federal loans only. |
Private and/or federal loans. |
|
Can I lower my rates? |
No. |
Yes. |
|
Can I save money? |
No. Consolidation may lower your payments by extending the loan term, but your interest amount will increase. |
Yes. |
|
Can I access federal loan protections, repayment options and forgiveness programs? |
Yes. |
No. |
|
Will I pay just one monthly bill? |
Yes. |
Yes. |
Consolidating private student loans
If you can lock in a lower interest rate, refinancing or consolidating your private student loans can help you save money.
Your financial history, including your credit score, income, employment history, and educational background, will determine the interest rate that is offered. Generally, to be eligible, you must have a credit score in the upper 600s, and the average interest rates for a refinance range from approximately 5% to more than 9%.
Consider private student loan consolidation if you have:
- Existing private student loans.
- A credit score of 690 or above is typically considered to be good or excellent credit.
- A steady income.
If your income or credit score aren’t the best, you can apply with a cosigner who has better credit.
While refinancing both federal and private student loans is possible, you might want to wait to refinance federal loans. Federal student loan interest rates remain zero at this time, and payments are suspended until later in the year. If you are eligible, you might want to wait until the student loan payment forbearance expires in order to take advantage of any potential loan cancellation and income-driven repayment credits.
Calculators can be used to compare the monthly payments associated with the following three scenarios: income-driven repayment, private student loan refinancing, and federal student loan consolidation.
How to consolidate private student loans
You should shop around to find the best lenders for refinancing your student loans. Before making your decision, give yourself enough time to look at several lenders and obtain multiple interest rate offers.
1. Research student loan refinance lenders that meet your needs. Lenders can offer products that cater to different situations. For example, some lenders will refinance international student loans. Even if you don’t have a degree, other lenders might be able to help you refinance.
2. Receive multiple interest rate offers. To prequalify, you might need to provide some basic information, but this usually has no effect on your credit score. Your goal is to find the lowest rate possible.
3. Choose your lender and loan terms. Be aware of your repayment period and interest rate, whether it is variable or fixed. These are the main variables that affect both the total cost and your monthly payment.
4. Complete the application. After you have read the loan offer over and feel comfortable with it, you must formally apply by filling out an application.
If accepted, you can wait for the new lender to reimburse your old lender while you sign all necessary paperwork. Simply keep making payments to your present lender until the refinance is finished.
Current rates from private refinancing lenders
A primary advantage of a federal loan consolidation is the ability to consolidate several student loan installments into a single invoice. While no credit check is necessary, there is also no possibility of a lower interest rate.
Consider federal student loan consolidation if you:
- Requires consolidation in order to qualify for public service loan forgiveness, income-driven repayment, or other relief programs. If you have parent PLUS, Perkins, or federal Family Education Program loans, this is the situation.
- Desire to make just one federal loan payment, but don’t require it to be significantly less
- are behind on their student loans and want to catch up
Generally speaking, once you graduate, stop attending school, or enroll less than half-time, you are qualified for federal student loan consolidation.
Federal loans are repaid by the government and replaced with direct consolidation loans when you combine them. Your new fixed interest rate will be equal to the weighted average of your previous rates, rounded up to the next one-eighth of one percent. So, for instance, if the weighted average comes to 6. 15%, your new interest rate will be 6. 25%.
Depending on the total amount of your student loans, your new loan term may be between 10 and 30 years. Usually, repayment of your consolidation loan begins 60 days after it is initially disbursed.
Avoid companies that charge fees to consolidate your federal loans; doing so through the Department of Education is free.
How to consolidate federal loans
Log in to studentaid.gov to access the direct consolidation loan application. You’ll need to finish the application in one session, so gather the documents listed in the “What do I need?” section before you start, and set aside about 30 minutes to fill it out.
1. Select the loans that you wish to consolidate and those that you do not.
2. Choose a repayment plan. You have the option of selecting a repayment schedule that is linked to your income or one that is based on the amount of your loan. The next step is to complete an income-driven repayment plan request form if you choose an income-driven plan.
3. Read the terms before submitting the form online. Pay your student loans as usual until your servicer verifies that consolidation is finished.
Consolidation is one of the few ways to get your loans back on track if they are in default. You must agree to enroll in an income-driven repayment plan and make three consecutive full, on-time monthly payments on the defaulted loan in order to consolidate your debt.
If you’re thinking about consolidating your federal or private student loans in order to significantly reduce your loan balance, you should think about income-driven repayment.
The government offers plans that cap payments to 10% to 20% of discretionary income and offer forgiveness on the remaining balance after 20 to 25 years of payments. You can sign up for free at studentaid.gov.
Income-driven repayment might be your greatest option if you have a large loan balance and low income in order to pay the least amount each month.
If you need to consolidate your federal loans in order to be eligible for programs like Public Service Loan Forgiveness, or if you just want to make one monthly payment, you should do so. Think about refinancing, sometimes referred to as private loan consolidation, if you want to reduce your interest rate and save money.
The Department of Education allows you to combine multiple federal student loans into a single loan. This gives you a single payment to manage versus several. Refinancing, also known as consolidating federal loans with a private lender, is another option. Refinancing federal loans may result in lower interest rates, but it also prevents you from participating in government initiatives like Public Service Loan Forgiveness and income-driven repayment plans.
The Department of Education offers free federal student loan consolidation at studentaid. gov. To refinance or consolidate your loans with a private lender, apply online directly with the lender. Should I consolidate my student loans?.
If you need to consolidate your federal loans in order to be eligible for programs like Public Service Loan Forgiveness, or if you just want to make one monthly payment, you should do so. Think about refinancing, sometimes referred to as private loan consolidation, if you want to reduce your interest rate and save money. Can you consolidate federal student loans?.
The Department of Education allows you to combine multiple federal student loans into a single loan. This gives you a single payment to manage versus several. Refinancing, also known as consolidating federal loans with a private lender, is another option. Refinancing federal loans may result in lower interest rates, but it also prevents you from participating in government initiatives like Public Service Loan Forgiveness and income-driven repayment plans. How do I consolidate my student loans?.
The Department of Education offers free federal student loan consolidation at studentaid. gov. To refinance or consolidate your loans with a private lender, apply online directly with the lender.
FAQ
Is it a good idea to consolidate my student loans?
Consolidation could lower your monthly payments when payments begin again. Consolidation, however, may also result in an extension of your loan repayment period. Consolidation, for instance, could result in a 20-year repayment period instead of a 10-year one.
Can student loans be forgiven if consolidated?
When borrowers combine loans, they will be credited with a weighted average of payments that, depending on the total principal amount of the loans being consolidated, count toward loan forgiveness. In addition, they will automatically be given credit toward forgiveness for specific deferment and forbearance periods.
Does it cost money to consolidate student loans?
You should never pay an upfront fee to apply for a federal education loan or to combine your federal student loans. There are no fees to consolidate your loans. While there may be fees associated with other federal education loans, like the Stafford and PLUS loans, they are always subtracted from the disbursement check.
Read More :
https://studentaid.gov/loan-consolidation/
https://www.nerdwallet.com/article/loans/student-loans/consolidate-student-loans