Consolidation & Refinancing
Graduates who have multiple loans may consider loan consolidation or refinancing when deciding on different payment options. Loan consolidation and refinancing give graduates the option to simplify their debt and keep track of fewer payments.
Direct Loan Consolidation is a free option available for federal student loan borrowers (private student loans are not eligible). A consolidation loan allows you to combine several types of federal student loans into a single new loan with one monthly payment and a fixed interest rate. Most federal education loans are eligible for consolidation, including the Direct Unsubsized Loan and the Graduate PLUS Loan. Generally, you are able to consolidate after you graduate, leave school, or drop below half-time enrollment.
Once your loans are combined into a Direct Consolidation Loan, they can't be removed. For more comprehensive information about federal loan consolidation, visit Federal Student Aid. To submit an application for a Direct Consolidation Loan, visit studentaid.gov.
| Benefits | Drawbacks |
|---|---|
| Simplify repayment: Only one monthly payment for federal loans. If you have federal student loans with different loan servicers, consolidation will give you a single loan with one monthly bill. |
Interest rate: The fixed rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent, leaving you with a slightly higher interest rate. |
| Lower monthly payments: Consolidating loans can extend your repayment period, and may result in lower monthly payments. It may also give you access to additional income-driven repayment plans and Public Service Loan Forgiveness. |
Can't strategize which loans to pay off first: If you pay extra amounts on higher-rate loans, you'll pay less interest overall. Consolidation makes you unable to target the highest-rate loan for quicker repayment. |
| Renewed hardship options: Consolidating loans can reset your time limits for loans previously in deferment and forbearance, and can help students get out of default. |
Potential increase for the total cost of loans: Because you may have a longer period of time to repay, you might make more payments and may pay more in interest. |
Student loan refinancing is available to both federal and private student loan borrowers. With a refinanced loan, a private lender repays your current loans and issues you a new loan with new terms and conditions. A refinanced loan can have a fixed or variable interest rate and may offer interest rate reduction. Specific eligibility can vary depending on the lender, but many refinancers will review your credit history, annual income, savings, employment, DTI (debt to income ratio), degree type and more.
Carefully research and consider your options before making a decision to refinance. We suggest considering the following factors:
- Lender reputability: Consult the Better Business Bureau, Federal Trade Comission, or the Consumer Financial Protection Bureau to determine the reliaibility of the potential lender.
- Repayment options: If you refinance a federal student loan with a private lender, you could lose options like income-based repayment, loan forgiveness, and deferment or forbearance under federal rules. What repayment options exist with the new lender?
- Fees or other costs: Review your loan agreement to ensure you understand charges you could incur such as application, origination, prepayment, or late fees.
- Interest Rates: Calculate the financial benefit that refinancing could provide. Are the savings worth any loss of benefits?
- Customer service: What type of support and customer service does the lender provide? Can they easily be reached by phone, email, or live chat?
If you decide to refinance, reach out to the lender of your choice to apply.
| Benefits | Drawbacks |
|---|---|
| Private and federal student loans may be combined: If you have both federal and private loans, you can refinance them with a private lender to streamline repayment. | Strict eligibility requirements: Loan eligibility depends on a number of factors, including financial history, career experience, income, and citizenship. There may also be a minimum loan amount required for refinancing. |
| Potentially lower interest rate: You can qualify for a lower interest rate, which may decrease your monthly payment or the cost of the loan. | Loss of federal benefits (if refinancing federal loans): Private lenders do not offer the same federal repayment plans and refinanced loans are not eligible for federal forgiveness programs. |
| Release a co-signer: If you needed a co-signer to initially apply, you may be able to get a new loan without a co-signer. | Fewer hardship options and faster default: Private lenders do not always offer hardship options such as deferment and forbearance. |
International Students
There are private lenders that will refinance loans for international students under certain conditions. Similar to borrowing private student loans, however, fewer options may be available. In order to maximize your refinancing options, it may be beneficial to begin building a credit history in the United States or to find an eligible U.S. based co-signer with whom you can refinance. Limited options do exist for refinancing with any visa and without a U.S. credit history or co-signer.