Refinance student loans?
You can refinance student loans, but only with a private loan. There is no federal refinancing option for student loans, meaning you can’t refinance federal or private student loans into a federal loan. However, you may be able to refinance your federal student loans and/or private loans into a new private loan. Generally, when you refinance a loan, your interest rate may decrease, depending in part on market rates and your credit score. A lower interest rate is typically why borrowers attempt to refinance their loans. An online calculator can show you how much interest you’ll pay over the life of the loan at different interest rates.
Keep in mind that if you refinance your student loans, your old loans will go away and the terms and conditions of your new private loan will bind you. If you had federal student loans, you would lose any income-based repayment options that might have been available to you because private loans generally don’t offer this type of repayment option.
Another refinance option
If you have federal student loans and you don’t want to lose any potential repayment options, or if you can’t find a suitable private loan to refinance, you might consider another option: federal loan consolidation. The federal government specifically offers a consolidation loan tailored to student loan borrowers. Loan consolidation is different from loan refinancing, even though you replace your old loans with a new loan under both options. With federal loan consolidation, your interest rate will not decrease, but you will have a single lender (the U.S. Department of Education) and a single monthly payment. To be eligible for federal loan consolidation, you must have at least one federal student loan in repayment, grace period, deferment, or default status. The interest rate on a federal consolidation loan is fixed for the life of the loan and based on the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent (0.125%), with a maximum rate of 8.25%.
Borrowers who opt for a federal consolidation loan can choose from various repayment options to pay their new consolidation loan, including income-based repayment, extended repayment, and graduated repayment. If you choose the refinancing route instead and replace your federal loans with a new private loan, remember that you won’t be able to consolidate the loan back into a federal student loan to get these repayment options.
Finally, you might consider other refinancing options, such as a home equity loan or a loan against your 401(k) plan. However, you should carefully explore the advantages and disadvantages of these options before pursuing them.
