Questions about what it means to consolidate or refinance
What is Student Loan Consolidation?
Student loan consolidation is the process of combining multiple loans into one new loan. Student loan consolidation also allows borrowers to extend their loan repayment term to lower their monthly payments. There are two ways to consolidate student loans, a federal consolidation loan or a private student loan refinance.
Private student loan refinance will allow a borrower to choose to refinance a single or multiples loans get a lower interest rate.
What is the difference between refinancing and consolidating student loans?
They are similar, but there are some important distinctions. Both will allow you to take existing loans and create a new loan. Federal student loan consolidation brings multiple federal student loans together with a Federal Direct Consolidation Loan (in some special circumstances, you can consolidate one federal student loan by itself). On the other hand, refinancing allows you to combine different types of student loans together (federal, private, etc.), or it may be done with just one loan.
When it comes to choosing between refinancing and consolidation, you never have to pick one or the other. You can choose to consolidate some or all of your federal student loans through the Direct Consolidation Loan Program (especially if you are trying to qualify for loan forgiveness), and refinance others. The choice is yours.
Private Student Loan Refinance or Consolidation
- Refinancing can include both federal and private loans together, is done with a private lender, and requires a credit check, including a debt-to-income analysis. Terms and underwriting criteria will vary between lenders, and your interest rate will be based on your credit, among other factors. Applying with a creditworthy cosigner (such as a spouse) may help you qualify or help lower your interest rate.
Federal Direct Consolidation Loan Program
- Federal student loan consolidation enables you to combine all of your federal student loans into a Federal Direct Consolidation Loan. This new loan replaces all of the loans you combined, with one new loan (meaning fewer monthly payments to keep track of). This program may not help you lower your interest rate (since your new interest rate will be the weighted average of the loans you are consolidated, rounded up to the nearest one-eighth of a percent), and will require a check to see if you had adverse credit as defined by the U.S. Department of Education. In most cases you are required to consolidate at least two loans. The lender in this case will remain the U.S. Department of Education and your Direct Consolidation Loan will be serviced by a federal student loan servicer.
- With the federal program, you will not be able to include any private student loan debt, or any debt for which you are not the borrower (e.g., a Federal Parent PLUS loan borrowed by your parent).
Will I save money if I refinance or consolidate my student loans?
The answer to this question is “it depends.” We’ll explain.
If you’re looking at saving money each month on the amount of your student loan payment, you will likely be able to reduce your monthly obligation. This is because both federal consolidation and refinancing allow you to extend the repayment period from a standard 10 year window to up to 20 years, or in some cases, even 30 years. Longer repayment timeframes mean lower monthly payments. However, extending your repayment term may cost you more overall in interest paid over time, but can help to reduce your monthly expenditures. (i.e., you can free up cash to help with other expenses).
Private refinancing lenders often have a cap of 20 years which is typically reserved for those with professional degrees (i.e., medical school graduates) and extremely high loan balances.
If you choose to refinance your loan, you can shop around for a lower APR (annual percentage rate) which helps you save on the overall amount of interest to be repaid IF you stay close to your original repayment timeframe. If you extend your loan repayment through either consolidation or refinancing, you will increase the total amount of interest paid over the life of the loan.
You can also make larger payments on your loan as you become more financially established, and potentially pay your loan off early. Bonus: There is no prepayment penalty for paying your loan off early.
- Only federal student loans can be consolidated with the Federal Direct Consolidation program.
- If you want to combine federal and private student loans together, you will have to work with a private lender.
- Extending your repayment term can free up cash
- If you want to lower your interest rate, you will need to consider refinancing.
- There are no penalties for paying your loan off early.
Which is right for you, student loan refinance or consolidation?
Should I Refinance My Student Loans? What are the Pros and Cons?
Student loan refinancing is credit-based. To qualify you will need to have a steady income and strong credit history, or apply with a creditworthy cosigner. If you’re not deemed eligible by private student loan refinance lenders, you will not be able to use this option as a repayment strategy.
The Pros of Refinancing
- Simplify repayment by combining several loans into one (reduces the number of loan payments you need to keep track of each month)
- Reduce the amount of monthly payments by increasing the term of the loan*
- Qualify for a lower interest rate
- Change from a variable to a fixed interest rate or vice-versa
- Remove a cosigner from the original loan
- Better service. Borrowers who don't like their current lenders can switch to a different lender
*NOTE: Increasing the term of your loan may increase the total interest paid over the life of your loan, but can help decrease the amount of your monthly payment.
The Cons of Refinancing
- If you extend your repayment term, you will also extend the amount of time you are paying interest on your loan. This may make the loan more expensive overall. However, with no prepayment penalties, you can increase your payments as you are able and pay your loan off early.
- If you pick a variable interest rate, your interest rate may go up. Most lenders will give you the option to choose between a fixed or a variable rate.
- Your federal student loans (like Direct Loans) will lose their federal loan benefits like, loan forgiveness or income-driven repayment.
Should I Consolidate My Student Loans? What are the Pros and Cons?
If you are looking to consolidate your federal student loans with a Federal Direct Consolidation loan, you should consider the benefits as well as the cons.
The Benefits of Consolidation
- Simplify repayment by combining several loans into one (reduces the number of loan payments you need to keep track of each month)
- Reduce the amount of your payment each month by increasing the term of the loan*
- If you have a Federal Family Education Loan Program (FFEL) or Perkins Loan and would like to take advantage of some of the loan benefits offered in the Direct Loan program (e.g., certain income-driven repayment plans or Public Service Loan Forgiveness (PSLF)).
- Change from a variable interest rate to a fixed
- Remove a cosigner from your original loan
- Choose our servicer. Borrowers who don’t like their current loan servicers can switch to a different one.
*NOTE: Increasing the term of your loan may increase the total interest paid over the life of your loan, but may also reduce the amount of your monthly payments.
The Cons of Consolidation
- Your overall interest rate will slightly increase. If you are consolidating in hopes of a lower interest rate, then you should reconsider your strategy. Your interest rate for a Federal Direct Consolidation Loan is not based on your credit score, but rather the weighted average of the interest rates on the loans you are consolidating rounded up to the nearest 1/8 of a percent.
- If you are looking to lower your interest rate you may want to consider private loan refinancing.
- If you have already been making eligible payments towards PSLF or forgiveness under one of the income-driven repayment plans, your eligible payments restart
- You could lose borrower benefits on your underlying loans. For example, a consolidated Perkins loan will lose its interest subsidy and cancellation benefits (forgiveness options only available to Perkins loan).
- A longer repayment term extends the amount of time you have to repay your loan but it may cost you more overtime.
Does private student loan refinancing affect my credit rating?
Refinancing can increase or decrease your credit score, or it may remain unchanged. Refinancing reduces the number of outstanding loans, but the total amount of loan indebtedness does not change. If refinancing reduces your monthly payment through a longer repayment term, it may improve your credit score.
Am I a Good Candidate for Refinance or Consolidation?
Can I refinance my student loans?
Federal loan consolidation is only an option for federal student loans, private student loans, state, and loans from your school cannot be included in a federal student loan consolidation. There is no credit check required for a federal student loan consolidation.
However, if you are looking into consolidating your private student loans, or consolidating your federal student loans and private student loans together, that is referred to as student loan refinancing. In order to qualify, you need to meet the eligibility criteria* of your chosen student loan refinance lender.
Keep in mind, if you do refinance your federal loans with a private lender, you will lose the federal benefits on those loans.
If you have other types of non-student loan debt, you will likely be unable to include those debts in a private student loan refinance.
*Eligibility criteria varies between lenders. In general, you need to have a credit score of at least 660 and two years of employment history. Additionally, there are income thresholds you will need to meet based on the amount of your overall debt. If you do not meet the minimum requirements of the lender, you will likely need a creditworthy cosigner.
Can I consolidate private student loans through the government?
At this time, you cannot consolidate private student loans through the government. But it is possible to consolidate private student loans by refinancing multiple student loans into one new loan. Refinancing is done through a private lender.
When you consolidate via refinancing, you can choose to refinance one, some, or all of your loans. You can also choose to include your federal student loans and private student loans when you refinance with a private lender.
You can also shop around and compare things like interest rates, repayment terms, and any lender specific perks.
But you must be sensitive to some important things:
- Refinancing is based on creditworthiness and income criteria. If you do not have a strong credit and employment history, you will likely need a cosigner to qualify.
- Should you choose to include federal loans in a private refinance, be prepared to forfeit certain borrower benefits such as generous deferment periods, income-driven repayment plans, and possibly loan forgiveness programs. Some private lenders offer brief periods of loan deferment under specific circumstances, but they are not comparable to the benefits of the federal program.
What student loans can be consolidated?
When we refer to consolidation, we are talking about the federal student loan consolidation program. This program is only available for federal student loans. Private student loans may not be included.
Most federal loans are eligible for a Direct Consolidation Loan, such as:
- Subsidized Federal Stafford Loans (both Direct and Federal Family Education Loans ‘FFEL’)
- Unsubsidized Federal Stafford Loans (both Direct and Federal Family Education Loans ‘FFEL’)
- PLUS Loans (both Parent PLUS* and Grad PLUS borrowed by you)
- Federal Perkins Loans
- HEAL Loans
- Supplemental Loans for Students
For a complete list of eligible loans, please refer to the U.S. Department of Education.
*Parent PLUS borrowers, you can consolidate this loan through the Federal Direct Consolidation loan program, however the loan obligation will remain yours. If you want to transfer the debt obligation to your child, lenders like PenFed Credit Union, CommonBond and Sofi will allow your child to refinance PLUS loans into their name.
NOTE: Private student loans can be consolidated by themselves, or along with federal student loans through a process referred to as refinancing. If you are looking to consolidate private student loans, you will want to look for information on private student loan refinancing.
What types of student loans can I refinance?
Most private student loans and federal student loans are eligible for refinancing, including loans taken out for undergraduate and graduate studies. Some private lenders may determine loan eligibility based on the college attended, degree level, or field of study.
Generally speaking, the following loan types may be included in a private student loan refinance:
- Federal Direct Loans (Subsidized, Unsubsidized, Parent PLUS*, Grad PLUS)
- Stafford Loans (including those under the former FFEL Program)
- Perkins Loans
- Federal Direct Consolidation Loans (yes, you can refinance a previously consolidated loan)
- Private Student Loans
- Including student loans obtained for:
- Undergraduate studies
- Graduate studies
- Medical School
- Law School
- Institutional Loans (those obtained directly through your school)
Can I consolidate student loans with my spouse?
You will not be able to consolidate your federal student loans with your spouse through the federal consolidation program (they ended the spousal consolidation option several years ago).
However, some private lenders, such as PenFed, do allow spouses to combine their student loans when they refinance.
How do I transfer a Parent PLUS loan to my child?
If you want your child to take over responsibility of repaying a Parent PLUS loan, your child has the option to refinance the loan into his or her name. Your child will need to meet the eligibility criteria of a student loan refinance lender, like PenFed Credit Union, CommonBond or Sofi. If your child is unable to meet the credit criteria of the lender, he or she will have the option to add a creditworthy cosigner.
Note: If you cosign on a refinance loan for your child, you will remain a responsible party for the loan.
Can I consolidate my loans with my parent's loans?
No. Students may not include their parent’s Parent PLUS Loans in their Direct Consolidation Loan. However, if you are looking for options to transfer your parent's PLUS Loans to your name, this can be accomplished through a private student loan refinance with lenders such as PenFed Credit Union, CommonBond and Sofi.
Note to Parents: If you are looking to consolidate your Parent PLUS Loans with your own federal debt, you are able to include them in your own Direct Consolidation Loan. However, be careful with this. If you want to repay your federal consolidation loan with an income-driven repayment plan, or want to qualify for Public Service Loan Forgiveness, you will be limited to only an income-contingent repayment plan.
When can I consolidate my student loans?
You can consolidate your federal student loans into a Direct Consolidation Loan once they are in the grace period, or have entered repayment. If you choose to consolidate during your grace period, your loan will enter repayment upon consolidation (meaning you may lose some of your grace period time).
If you want to refinance with a private lender, you can refinance your federal and private student loans as soon as the loan is disbursed. However, if you do this with your federal student loans, you will lose benefits such as the six-month grace period students are given after graduation before their loans enter repayment.
Can I refinance my student loans after consolidation?
In most cases, yes.
If you previously refinanced your student loans through a private lender, you can refinance again with or without including any eligible new loans. It is advisable to go through the entire process again, from comparing lenders, to choosing a lender and applying. This will help ensure you get the interest rate and terms that are right for you.
You may also refinance a Direct Consolidation Loan through a private lender as well.
If you want to consolidate your loans again through the Direct Consolidation Loan program, you will likely need to include a new eligible loan, which was not part of the original consolidation. Check with StudentLoans.gov to learn more.
Student Loan Refinance Eligibility and Terms
Can I postpone payments on a Direct Consolidation Loan or Private Student Loan Refinance?
Federal student loans, including Direct Consolidation Loans, offer borrower benefits such as deferment and forbearance. As long as you meet the criteria and have not used up all your time, you may be able to temporarily postpone payments on your loans. You may want to also consider income-driven repayment plans which will base your monthly payment on your income rather than your loan balance.
Some private student loan refinance lenders also offer periods of deferment. The terms, including qualifying circumstances and length of deferment, vary by lender. It is best to contact your refinance lender directly for information on any deferment benefits they may offer.
How long is the repayment period?
A private student loan refinance repayment terms vary by lender, and can be anywhere from 5 to 20 years.
The Standard Direct Consolidation Loan repayment period is determined by your total education debt, which considers both federal and private student loan debt. In your application you can report the amount of your private student loans, even though you can't include the actual loans in your consolidation.
The following table shows the maximum repayment term under the sStandard Direct Consolidation Loan repayment plan:
Loan Balance Maximum Repayment Period
Less than $7,500
$7,500 to $9,999
$10,000 to $19,999
$20,000 to $39,999
$40,000 to $59,000
$60,000 and above
You do not need to choose the standard repayment plan for a Direct Consolidation Loan. You are free to choose another repayment plan, like a 10-year standard plan or an income-drive repayment plan if you prefer.
Are there any prepayment fees or penalties?
There are no prepayment penalties on federal or private student loans. Making extra payments is a great way to pay off your loans faster and save money on interest.
How do I spot a student loan scam?
There are some distinct methods student loan scammers use:
- They ask you to pay up-front fees.
- They charge monthly fees which are not part of your loan repayment.
- They promise you immediate, or some sort of loan forgiveness.
- They ask for you to share your FSA ID username and/or password.
- They ask you to sign and submit written agreements or contracts to give them permission to make decisions on your loan.
- They ask you to allow them access to your personal accounts (e.g., bank accounts).
- They claim that the offer they have is limited.
- They have spelling or grammatical errors in their ads, emails, and communications.
If you feel like you have been approached by one of these companies, please contact your loan servicer. For more information please go to https://studentaid.ed.gov/sa/repay-loans/avoiding-loan-scams#free-help.
Will I be charged fees to refinance my student loans?
Many lenders do not charge fees to refinance private student loans. Some lenders roll the fees into the interest rate. We recommend you ask any potential lenders to explain any fees they may charge.
There are no fees to consolidate with a Direct Consolidation Loan.
What is the interest rate for a federal direct consolidation loan?
What is the interest rate for a private student loan refinance?
Each private lender has their own criteria for determining interest rate. Factors that may help determine your interest rate include your credit history and the repayment term you choose. Additionally, many lenders will offer a fixed or a variable rate to choose from.
Am I eligible to refinance or consolidate my student loans?
Student loan refinancing and student loan consolidation are different methods of debt restructuring, and have different eligibility criteria.
Private student loan refinance requires approval from a private student loan lender. Eligibility criteria varies between lenders, but in general, you need to have a credit score of at least 660 and two years of employment history. Additionally, you will need to pass appropriate income thresholds based on the amount of your overall debt. If you do not meet the requirements of the lender, you may be required to obtain a cosigner.
The Direct Consolidation Loan Program will require you to have one or more federal student loans to qualify. In general, most individuals who have federal student loans will be eligible to consolidate their loans. However, there are some requirements:
- Your loans must be in repayment or in their grace period.
- Generally, if you already have a consolidation loan you will need at least one additional eligible loan to consolidate again.
- If you're in federal student loan default, you will need to agree to additional terms set by the U.S. Department of Education.
Is there a credit check required for a Direct Consolidation Loan?
No. Eligibility for federal student loan consolidation does not depend on the borrower's credit history or credit scores. However, if your federal student loans are in default, you may encounter a few issues. The U.S. Department of Education will let you know what additional steps you need to take in order to qualify.
Can I lower my interest rate after consolidation?
A Direct Consolidation Loan provides auto-debit interest rate discounts for making automatic monthly payments by direct debit from a bank account (ACH). The interest rate reduction will be 0.25%.
Many private student loan refinance lenders also provide auto-debit interest rate discounts for making automatic monthly payments by direct debit from a bank account. Typical discounts include an interest rate reduction of 0.25% or 0.50%. You will need to check with your refinance lender to see if this benefit is offered.
What are the loan limits for private student loan refinance loans?
Loan limits and minimum balance requirements vary by lender. Minimum amounts typically range from $5,000 to $10,000. Maximum amounts apply as well, with the highest maximums typically reserved for graduates of medical school, law school, or other professional programs.
Your highest degree level, credit score, and income may also play a factor in determining your loan limit.
The repayment terms available to you may depend on the amount of the loan, and will vary by lender. Terms typically range from 5 to 20 years. Lenders offering fixed interest rates may have shorter repayment terms.
What can I do if I am not eligible for a Direct Consolidation Loan?
If your loans are ineligible for a Direct Consolidation loan, you can explore consolidating your student loans by refinancing them with a private lender.
How does cosigning a student loan affect my credit?
If you decide to cosign a student refinance loan, you are equally responsible for that debt. The debt will show on your credit report, and lenders may consider the cosigned loan(s) while approving you for other types of credit.
If the borrower is unable to make their monthly payments, the responsibility will fall to you. If you decide to cosign a loan, there are several factors you should consider:
- Do you trust the borrower of the loan?
- Will the borrower be responsible and repay the loan or communicate with you if they are facing financial hardships?
- Does the lender offer cosigner release, and do you know their terms (length of time in repayment, and any other terms which could eliminate the option)?
- If needed, could you afford to repay the loan with no assistance from the borrower?
Is a cosigner required for a private refinance loan?
If you do not satisfy a lender’s credit criteria, a cosigner may be required. Recent college graduates may not have a long enough credit history or work history to qualify without a cosigner.
Even if a cosigner is not required, adding a cosigner may result in a lower interest rate. A cosigner is a co-borrower, equally obligated to repay the loan. The private refinance loan will be reported as debt on the credit history of both you and your cosigner until the loan is paid in full. So choose your cosigner wisely. Many individuals choose their spouse, if they qualify, to be their cosigner.
My original private student loans have a cosigner. Do I need to refinance with my cosigner too?
No. If you are able to qualify for a private refinance loan on your own, you can combine your existing student loans into the new refinance loan without a cosigner. This will pay off your existing loans, and create a new loan solely in your name. Releasing your cosigner of any obligation.
However, if you are unable to qualify for a private refinance loan on your own, you may need a cosigner—but this cosigner could be someone else, it doesn’t have to the be the same cosigner you used previously.
Can a cosigner be removed from a student loan?
If you cosigned a student loan and now would like to be removed, you and the borrower of the loan have three options:
- Some lenders offer cosigner release as an option on their student loans. Typically, these require 12, 24, 36, or 48 months of consecutive on-time payments by the primary borrower. The primary borrower must also satisfy credit criteria. Make sure you understand the terms to release your cosigner.
- The primary borrower must refinance or consolidate.
- Federal PLUS Loan borrowers can consolidate their debt into a Direct Consolidation Loan. The consolidation process will create a new loan and remove the cosigner.
- For private student loans, the primary borrower would need to refinance their loans. The borrower needs to either be creditworthy enough to qualify on their own, or they can refinance with a different cosigner (like a spouse).
Do private student refinance loans offer cosigner release?
Some lenders offer cosigner release as an option on their private refinance loans. Typically, these require 12, 24, 36, or 48 months of consecutive on-time payments by the primary borrower. The primary borrower must also satisfy credit criteria. Make sure you understand the terms to release your cosigner.
How Do I Refinance or Consolidate My Student Loans?
Best lenders to refinance student loans?
PrivateStudentLoans.com (a service provided by Edvisors), is one of the best places to compare student loan refinance options. We have narrowed down some of the best student loan refinance programs in the market today, including those offered by the following companies*:
- College Ave
- PenFed Credit Union (Purefy)
- Iowa Student Loan (Aspire)
- Thirvent Federal Credit Union
What will my interest rate be when I refinance my student loans?
Interest rates on private refinance loans vary by lender, and may be variable or fixed.
Typically, the interest rate is based on the credit score of the borrower and the cosigner (if applicable).
Current rates will vary between 2.6-9.0% APR (variable) and 3.5-9.0% APR (fixed). Generally, a better credit score will lead to a lower interest rate.
How do I refinance or consolidate my student loans?
To refinance your student loans, you need to find a lender that offers student loan refinancing. Our compare lenders page makes it easy to review lenders and check your eligibility. You may refinance some or all of your student loans, including federal and private.
If you choose to combine your loans into a Direct Consolidation Loan, you will need to submit an application to StudentLoans.gov. The application process should take about 30 minutes. The Direct Consolidation Loan program is run by the U.S. Department of Education. This consolidation program is only available for federal student loans.
How do I locate my student loans?
It is always best to determine if you have federal or private student loans, and who services them before you start the refinance or consolidation process.
- To find your federal student loans: Log into your My Federal Student Aid account with the U.S. Department of Education. Or call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).
- To find your private student loans: Request your free annual credit report (yes, it's really free, and it's legit) at AnnualCreditReport.com. The balances and lender information for your private student loans should be listed in your report. You will need this information to refinance.
How long does it take to refinance or consolidate my student loans?
A private student loan refinance and a federal student loan consolidation will typically take 30 to 60 days. While you wait, you should continue to make your payments.
Any overpayments (payments made but not applied to your loan) will either be forwarded to the new lender or refunded back to you.
Does a private refinance loan have to be approved by my school?
No. Private refinance loans are not school-certified since they refinance existing loan debt.
Should I make payments while my new student loan is being processed?
Yes. Until you receive confirmation from your new lender of your new loan, you should continue making payments to your existing lenders. Any overpayment with either be forwarded to your new lender or refunded back to you.
NOTE: Keep track of your payments during this time period. If you are due a refund from your former lender, it’s a good idea to know how much so you can follow up, if needed.