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fizkes/Shutterstock August 17, 2022 Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Bankrate logo The Bankrate promise
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Student loan refinancing is the process of taking out a new loan with a to pay off all or some of your existing student loan debt. This new loan can have a different repayment term and interest rate than your original loan. If you’ve worked to , you might qualify for a lower interest rate when you refinance. That could save you hundreds or even thousands of dollars in interest over the life of your loan. Refinancing can also make your student loan payments more manageable if you choose a longer term. However, this will result in more interest paid over the life of the loan. Finally, if you have loans from multiple servicers, refinancing can help you consolidate those loans into a single account, with one payment due date and billing cycle, making it easier for you to repay your debt. Student loan refinancing vs consolidation
Although people tend to use the terms “refinancing” and “consolidation” interchangeably, they are actually two different things. Refinancing is only done through private lenders, and it could change all of your loan details — your interest rate, repayment term and even lender. However, because of this, you can often get a lower rate or a lower monthly payment. , on the other hand, is offered through the federal government. With this program, you can combine multiple federal student loans into one Direct Consolidation Loan and potentially change your repayment timeline. Consolidating loans may provide access to more repayment and loan forgiveness options, but it won’t necessarily save you money, since your interest rate will be the of all the loans you’re consolidating. If you choose a longer repayment term after consolidating, you may end up paying more in total interest over the life of the loan. Pros and cons of refinancing your federal student loans
It’s possible to refinance federal student loans, but doing so means switching from a federal student loan to a private student loan. With federal student loans, you should never refinance without first understanding the benefits you’ll give up by doing so. Pros of refinancing
Lower interest rate. If you took out your federal student loans when interest rates were high, refinancing to a private student loan could save you thousands of dollars. This is especially true if you have good credit and can qualify for the lowest advertised rates. Different repayment timeline. Federal student loans are automatically placed on a 10-year repayment timeline. When refinancing, you can choose a shorter timeline to save on interest or a longer one to lower your monthly payments. Combine multiple loans. If you have loans from multiple lenders, refinancing can help you bundle up all of your accounts into a single one, making it easier for you to handle your debt. Cons of refinancing
No access to income-driven repayment. adjust your monthly payments to 10 to 20 percent of your discretionary income — a benefit that private lenders lack. No loan forgiveness programs. Some federal borrowers qualify for , which forgives your remaining loan balance after 10 years of qualifying payments. You’ll lose this benefit if you refinance, even if you’re close to meeting the requirement. You also won’t be able to receive broad loan forgiveness offered by the Biden administration. Few defined deferment or forbearance programs. The federal government has established deferment and forbearance options for borrowers. While private lenders may offer hardship programs, they’re usually determined on a case-by-case basis. Forfeit pandemic relief benefits. Some private lenders established coronavirus hardship options early on in the pandemic, but those relief programs have mostly expired. The federal government, on the other hand, continues to waive interest and payments on federal loans through Dec. 31, 2022. Should you refinance federal student loans
Although in most cases it doesn’t make sense to refinance federal student loans, there are times when it’s worth considering. Kristen Ahlenius, accredited financial counselor and director of education at Your Money Line, says to ask yourself the following before refinancing federal loans: How stable is my household income? “Suppose you experience a reduction or loss of income or even decide to return to school. In that case, there is greater guaranteed flexibility in the federal space than with a private lender,” Ahlenius says. “Of course, a private lender might offer some options, but these options aren’t standardized.” Am I or could I be eligible for loan forgiveness? Loan forgiveness is available for some borrowers who work for a nonprofit or government organization. “Be advised that forgiveness is only available for qualifying loans which never includes private student loans,” Ahlenius says. “Before refinancing, be sure you can’t or won’t qualify for other forgiveness opportunities.” How to refinance your student loans
If you decide to refinance your federal student loans, you should find the best lender, interest rate and loan term to fit your financial situation. Here’s how to get started: Research lenders. Some lenders cater to specific borrowers, such as or borrowers refinancing medical school debt. Look for the lenders that fit best with your situation and compare interest rates, terms and fees. If you don’t know where to start, you can always use the help of a lending marketplace, such as Credible, which allows you to compare offers from multiple lenders by filling out a single form. Get prequalified. Once you’ve narrowed down your search to two or three picks, get prequalified with each to find out which will give you the best rate. does a soft pull of your credit score to determine what interest rate you qualify for and is the best way to compare your options. Send in an application. After you’ve been prequalified with a lender, you can submit a full application. During this process, you’ll usually have to provide some form of ID, financial information and employment verification. Begin payments. Once the application is approved, your new lender will pay off your old loans directly. You’ll have to start making payments to your new lender immediately. Take time to learn how payments work, when they will be due and any other important details you’ll need to manage your loans with the new lender. Other ways to pay off federal student loans
Refinancing to a new, lower-rate loan is a popular way for borrowers to pay off their student debt faster. But there are other ways to pay off your federal loans faster without having to refinance or consolidate your debt. Student loan forgiveness: Depending on your situation, you might qualify for full or partial . You have to meet certain criteria to qualify for loan forgiveness, but you could save thousands of dollars on your loans. Extra payments: If you want to pay off your student loans quickly, simply pay more money every month. Start tracking your expenses and put any windfalls toward your debt. Paying off your loans faster will also help you pay less interest. Autopay discounts: All federal student loan servicers will give you a 0.25 percent discount each month when you sign up for automatic payments. If you apply the savings toward extra payments, that small discount can add up over time and help you eliminate your student debt a little faster. Employer student loan assistance: Some companies offer as an employee benefit. If you’re job hunting, look for positions that offer this benefit or see if you can negotiate student loan assistance as part of your new benefits package. State repayment assistance: Some places, like and parts of , will pay a portion of your student loans if you move there. While you’ll have to meet specific eligibility requirements, you could knock out a significant portion of your debt. SHARE: Emma Woodward is a former contributor for Bankrate and a freelance writer who loves writing to demystify personal finance topics. She has written for companies and publications like Finch, Toast, JBD Clothiers and The Financial Diet. Chelsea has been with Bankrate since early 2020. She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Related Articles