Student Loan Consolidation and Refinancing FAQs for 2019
We've compiled frequently asked questions about federal student loan consolidation, private student loan refinance, and the general questions that borrowers ask when comparing their refinance and consolidation options.
General Questions About Student Loan Consolidation and Refinancing for 2019
Does consolidation (or refinancing) student loans save money?
The answer to this question is “it depends.” We’ll explain. First, if you’re looking at saving money each month on your student loan payment, then it is quite likely you could shave costs on your monthly obligation. This is because federal consolidation—and refinancing, for that matter—allows 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. For refinancing, private lenders typically have a cap of 20 years which is often reserved for those with professional degrees (i.e. medical) and extremely high loan balances.
Second, if you choose to refinance your loan, you are able to 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 repaid over the life of the loan. But you can choose up front to reduce the repayment term. And you can also accelerate how quickly you repay the loan. There are no prepayment penalties, after all.
Final note: you can only combine your federal and private student loans together through refinancing vs. federal consolidation. And you can only qualify for a lower interest rate through a refinance, not a Direct Consolidation Loan.
What is the difference between consolidation and refinancing?
They are very similar, but there are subtle—and important—distinctions. Consolidation brings multiple loans together. Refinancing may bring multiple loans together, or may be done with just one loan. People typically choose to refinance because they are also looking for a lower interest rate.
The Direct Consolidation Loan program for federal student loans will not help you lower your interest rate, is only available for federal student loans, and does not require a credit check. 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.
Refinancing can include federal and private loans together, is done with a private lender, and requires a credit check. Terms and underwriter criteria will vary between different private loans, and your interest rate will be based on your credit.
Is there a federal option to refinance my federal loans (including PLUS loans)?
How do I spot a student loan consolidation or refinancing scam?
- They ask you to pay up-front fees.
- They charge monthly fees which are not part of 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 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.
Questions About Private Student Loan Refinancing and Consolidation for 2019
Can you consolidate private student loans?
Yes, it is possible to consolidate private student loans. This process is also known as refinancing and 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.
But you must be sensitive to some important things:
- Private student loan consolidation (a.k.a. refinancing) is based on credit worthiness 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 consolidation, be prepared to forfeit certain borrower benefits such as generous deferment periods, income-based 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 types of loans are eligible for private student loan refinancing or consolidation?
What are the benefits of refinancing private student loans?
Some benefits of refinancing a private loan may include:
- 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 fixed to a variable interest rate or vice-versa
- Borrowers who don’t like their current lenders can switch to a different lender
Does the private refinance loan have to be approved by the school?
What is the interest rate on a private refinance loan?
Are there any repayment discounts for private refinance loans?
Will refinancing my private student loans save me money?
A private refinance loan may reduce your monthly payment by increasing the term of the loan. This may help you free up some cash for other things such as paying off higher-interest debts. This could help save you money. However, increasing the term of your loan often leads to more interest being charged over the life of the loan.
If you qualify for a lower interest rate, and don’t extend the term of the loan, the total cost of the loan will be lower, and you will ultimately end up paying back less money than you would have if you had not refinanced.
How does my spouse's income influence my refinancing?
If you’re refinancing, but not including your spouse as a cosigner on the loan, it’s important to note that 100% of any joint debt you hold (like a mortgage) will be considered your debt. The lender will compare this debt to your income only. If the debt-to-income ratio is too high, you may be asked to add a cosigner.
My original private student loans have a cosigner. Do I need to refinance with my cosigner too?
Do private refinance loans offer cosigner release?
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 yield 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.
Does private loan refinancing affect my credit rating?
Are there any fees on private student loans refinance loans?
What are the loan limits for private student loan refinance loans?
Loan limits and minimum balance requirements vary by lender. Some will allow you to get a private refinance loan for as little as $7,500 or $10,000. Others require a higher initial loan balance.
The loan limits may vary based on whether you have an undergraduate or graduate degree. It may also depend on your credit score and income.
How long is the repayment terms for private student loans refinance loans?
How long does it take to get a private student loan refinanced?
Should I make payments while my 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 lender. 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.
How do I refinance my student loans?
Are there any penalties for prepayment of private student loans when refinancing?
As with all federal and private student loans, there are no prepayment penalties for making extra payments or paying off your balance early.
Questions About Federal Student Loan Consolidation for 2019
What is federal student loan consolidation?
When can I consolidate my student loans?
What types of federal loans can be consolidated?
Most federal loans are eligible, such as:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- PLUS Loans (both Parent PLUS and Grad PLUS)
- Federal Perkins Loans
- HEAL Loans
- Supplemental Loans for Students
For a complete list, please refer to the U.S. Department of Education.
Will I be approved for a federal Direct Consolidation Loan?
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 default, you will need to agree to additional terms set by the U.S. Department of Education.
Should I consolidate my student loans?
Loan consolidation is a personal choice.
Here are some of the pros:
- If you have more than one servicer, it may be easier for you to manage your loans if they are all in one place.
- If you have a Federal Family Education Loan Program 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)).
- If you have loans with a variable interest rate and would like to have a fixed interest rate.
- If you need smaller monthly payments, you can extend your repayment term to make your monthly payments more affordable. (Keep in mind you will pay more over the life of the loan.)
Here are some of the cons:
- 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 loans 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.
- A longer repayment term will mean it will take you longer to repay your loan, and it will cost you more.
I consolidated in the past, can I do it again?
Is there a credit check required for a Direct Consolidation Loan?
What is the interest rate on a Direct Consolidation Loan?
Can my spouse and I consolidate our loans together?
Can I consolidate my loans with my parent's loan?
Can I consolidate my private student loans with a federal Direct Consolidation Loan? What about other types of non-student loan debt?
How longs does it take to consolidate federal student loans? Do I have to make payments while I wait?
How do I consolidate my student loans?
If you choose to combine your loans into a Direct Consolidation Loan, you will need to submit an application at StudentLoans.gov. The application process should take about 30 minutes. The Direct Consolidation Loan program is run by the U.S. Department of Education.
- Log in with your FSA ID
- Choose the federal loans you would like to consolidate. Though you can’t roll your private student loans into the Direct Consolidation Loan, you can include the loan balances of your overall student debt—which will give you an option to extend your repayment term up to 30 years.
- Select your servicer, unless you are working towards Public Service Loan Forgiveness (PSLF). If you are working towards PSLF, the Department will choose the loan servicer who is working with all PSLF borrowers.
- Pick a repayment plan. If you choose an income-driven repayment plan (like income-based repayment), you will need to link the application to the IRS in order to confirm your income.
- Review the terms and conditions carefully. You are committing to these terms so do not just scroll down to the end.
- Enter your personal information as requested. This will be where you have to include two references who must have different addresses and telephone numbers from each other.
- Review and sign your application.
How long is the repayment period?
The 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 standard repayment plan:
Loan Balance Maximum Repayment Period
|Less than $7,500||10 years|
|$7,500 to $9,999||12 years|
|$10,000 to $19,999||15 years|
|$20,000 to $39,999||20 years|
|$40,000 to $59,000||25 years|
|$60,000 and above||30 years|
You do not need to choose the standard repayment plan. You are free to choose another repayment plan if you prefer a shorter term.
Are there any prepayment fees or penalties?
Can I suspend payments on a Direct Consolidation Loan?
What can I do if I am not eligible for a Direct Consolidation Loan?
If you have other types of debt to refinance, you can look for a personal line of credit or loan from a bank, credit union, or other financial institution.