Frequently Asked Questions
You can refinance private and federal student loans. If you have both private and federal student loans, you could consolidate them into a single loan. As noted above, federal loans have specific protections that private student loans do not, so always understand exactly what you’re signing up for when you refinance.
Refinancing may help you secure a lower interest rate than your original loans and/or sign up for a new term length that is more aligned with your financial goals. You may be able to lower your monthly payment and/or save interest over the life of your loan. You may also be able to secure a fixed rate, if you currently have a variable rate on your student loan. Refinancing may help debt management, as consolidating multiple loans simplifies multiple payments into one single payment. Some private lenders also offer extra benefits, such as autopay discounts and prepayment benefits. However, this will depend on your loan terms and the way you choose to repay your student loan debt. These benefits will also vary between lenders.
Many student loans qualify for refinancing. You could refinance federal, private and Parent PLUS student loans. When you refinance, you could consolidate all your loans into one loan with one monthly payment. Certain lending partners may also allow you to refinance your loans together with your spouse’s loans.
If you decide student loan refinancing is not the best route for you, there are other options available, including:
- Deferment: A temporary freeze on making monthly student loan payments, during which time interest will not accrue. The federal government offers deferment for up to 3 years.
- Forbearance: A temporary pause on making student loan payments, though in this case interest would continue to accrue. The federal government typically offers forbearance for up to 1 year.
- Student Loan Forgiveness: If you have a federal student loan, you may be eligible for student loan forgiveness. There are currently no programs available for private student loan forgiveness.
The availability of deferment and forbearance for private student loans varies by private lender.
You may have heard the term “student loan consolidation.” This is another alternative to refinancing your student loans. And although many believe the two to be the same, they are different.
- Student Loan Refinancing: Offered by private lenders, refinancing is the issuance of a new loan with new repayment terms and a new interest rate to pay off multiple loans. Refinancing is available for both federal student loans and private student loans.
- Student Loan Consolidation: Primarily offered by the government for federal student loans, consolidation is the act of combining multiple federal student loans into one. The new loan will have an interest rate equal to the weighted average of your existing federal student loans.
Typically, only to the extent that you lose a point or two when the lender runs a credit inquiry to validate your creditworthiness. The resulting decrease in your credit score could rebound within a year.
And in fact, refinancing may help your credit. For example, if lower payments mean you are more consistent with your monthly payments, that may lead to a higher credit rating. Some lenders may even offer a discount for putting your monthly payments on autopay, allowing you never to miss a payment, improving your credit score, and saving you money.
Absolutely! Just as your financial standing may change (hopefully for the better!), interest rates in the market may also change.
In either case, you may want to consider refinancing your student loans to take advantage of the potential benefits of student loan refinancing that are available under improved conditions — in particular when it comes to getting a lower interest rate.
The downside? Private lenders will run a hard credit inquiry every time you apply to refinance your student loans, which could impact your credit score.
We want to reiterate the difference between the “fixed interest rates” and “variable interest rates.”
- Fixed interest rates do not change over the term of the loan. In other words, with a fixed rate if your interest is 5% when you receive a loan, it will be 5% until you repay the loan or refinance.
- Variable interest rates (also known as floating rates) change throughout the loan term based on economic conditions in the market.
So what does this mean for you? For one, there are times when a variable interest rate may be lower than a fixed rate. However, the reverse may also be true. Because of this instability, it may be difficult to budget for student loans with variable interest rates.
Although eligibility requirements vary by lender, typically to qualify for student loan refinancing, you must have the following:
- A low debt-to-income ratio (no more than 30%).
- A history of on-time payments.
- Good to excellent credit (preferably 700 or higher).
Other eligibility considerations may include a requirement that you have graduated, have a minimum income level, and/or are a US citizen or permanent resident.
The good news is that if you don’t currently qualify for student loan refinancing, you can re-apply again if your situation changes.