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You're our top priority.
We want you to be able to make decisions about your student loans with confidence. We offer objective, independent, straightforward guidance on student loans and refinancing lenders. While our site doesn't answer every question or have every lender, we are proud to provide the information and tools you need — free of charge — to make the best decisions for yourself. So how do we make money? We get paid in two ways. First, you can hire us to develop a student loan strategy for you and implement that strategy on your behalf. Second, our partners compensate us. This may influence which refinancing lenders we write about, but it doesn't affect our recommendations or advice. Our partners cannot pay us to guarantee favorable reviews of their products or services.Refinancing federal student loans that you’ve consolidated can save you money, but it will cost you borrower protections like access to loan forgiveness and income-driven repayment plans.
Refinancing a consolidated student loan can be a good idea if you qualify for a lower interest rate. But moving your loans from the federal government to a private lender will cost you access to programs offered by the U.S. Department of Education.
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Advertiser Disclosure
You're our top priority.
We want you to be able to make decisions about your student loans with confidence. We offer objective, independent, straightforward guidance on student loans and refinancing lenders. While our site doesn't answer every question or have every lender, we are proud to provide the information and tools you need — free of charge — to make the best decisions for yourself. So how do we make money? We get paid in two ways. First, you can hire us to develop a student loan strategy for you and implement that strategy on your behalf. Second, our partners compensate us. This may influence which refinancing lenders we write about, but it doesn't affect our recommendations or advice. Our partners cannot pay us to guarantee favorable reviews of their products or services.Is refinancing consolidated federal student loans a bad idea?
Refinancing federal student loans doesn’t make sense if you’ve had difficulty making the student loan payments due on your consolidation loan. Private lenders offer little help if your income drops.
The best options many lenders offer are to temporarily pause payments with a deferment or forbearance or let you make interest-only payments for a brief period of time. But once that relief ends, you’ll have to make the payments the loan servicer is demanding. If not, you’ll risk defaulting.
Refinancing a consolidated federal student loan also may be a bad idea if you’ve worked full-time for the government or nonprofit anytime after October 2007. Refinancing would end your eligibility for the Public Service Loan Forgiveness Program. Read more about the Public Service Loan Forgiveness.
Refinancing is permanent: once a private lender holds the loan, there is no route back to federal programs, including federal student loan forgiveness.
Learn More: How to Lower Student Loan Payments
Consolidation and refinancing compared
Federal student loan consolidation combines your federal loans into a single loan made under the Direct Consolidation Loan program. This process won’t change your interest rate. Still, it could make you eligible for better repayment options and help qualify you for loan forgiveness programs. You’re eligible to consolidate even if you have a spotty credit history.
Private student loan refinancing — also called private student loan consolidation — refers to paying off your existing federal or private student loans and getting a new private loan. You’ll need good credit or a cosigner to get the most competitive rates. You can also choose between paying a fixed or variable interest rate. Many lenders limit the amount they’re willing to refinance.
When should you refinance a student loan after consolidation?
Look to refinance your consolidation loan only after becoming comfortable with no longer qualifying for federal loan benefits. Student loan refinancing can offer you long-term savings, especially if you have high-fixed interest rate Parent PLUS Loans. Read more about Parent PLUS Loan repayment options.
You’ll need good credit (ideally a FICO score in the 700s), stable income, and a low debt-to-income ratio to qualify for the best student loan refinancing repayment terms. You can also add a cosigner to strengthen your application.
You can shop around using an online marketplace like credible.com. You’ll be able to compare rates and loan terms without a hard credit check.
Once you find a few offers you like, submit loan applications to each lender within a short window. The multiple inquiries will be treated as one on your credit report.
Learn More: How Does Student Loan Refinancing Affect Credit?
Bottom Line
Refinancing your current loan can help you save money in the long run, but it comes with some costs. The new loan will be a private student loan, which means you won’t get the same benefits available to federal education loans.
If you want to lower your monthly payments, explore all of the government’s repayment options on studentaid.gov. You may find that you can keep your loans federal and get a more affordable payment.
After you do that, if you believe refinancing your consolidation loan is best for you, shop around with different lenders to find the best rates.
UP NEXT: Who Do You Contact If You Have Questions About Student Loan Repayment Plans?
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