How to Consolidate and Refinance Student Loans
If you have multiple loans or are looking to get a lower interest rate, student loan consolidation or refinancing may be right for you! The process of student loan consolidation and refinancing is simple; most lenders have an application that takes less than 30 minutes to fill out. Continue reading to learn how to consolidate or refinance student loans!
Consolidating and refinancing
People often use the terms “consolidating” and “refinancing” interchangeably. However, there are some distinct differences between the meanings. Both involve combining multiple loans into one single loan. The lender will pay off your existing loans and give you a new one in exchange. The reason a borrower would do this is to have one payment as opposed to multiple from different lenders.
Consolidation means combining multiple federal student loans. Department of Education loans are the only loans eligible for consolidation. Remember, you cannot exchange private loans for federal loans. If you have federal loans with multiple servicers, consolidating them can get you a single monthly payment. Consolidation can also lower the amount of your monthly payment by extending the repayment period. However, you’ll pay more in interest over the life of the loan.
Refinancing is the consolidation of private student loans. There are several banks and other financial entities that offer refinanced loans. The new lender you select will repay your loans in exchange for a single private loan. Often, you’ll get a lower interest rate for refinancing. While federal loans can be combined with private loans in a refinanced loan, you will lose the benefits that come with them.
How to consolidate
The application for federal student loan consolidation can be completed for free online. Federal student loans are consolidatable any time after you graduate, leave school, or drop below half-time enrollment.
Repayment of the newly consolidated loan begins 60 days after the disbursal of the loan. Your loan servicer will remind you when it is time to make payments. If you consolidate your loans while still in the grace period, you can request to delay repayment until closer to the end of the grace period. While not in the grace period, continue to pay your loans regularly until the disbursal of the consolidation loan.
There are some requirements for federal student loan consolidation:
- Loans included in consolidation must be in repayment or the grace period
- A consolidation loan cannot be reconsolidated unless it is included with another eligible loan
- To consolidate a defaulted loan, you must make 3 consecutive monthly payments before consolidating or agree to repay your new loan under an income-driven repayment plan
- Loans collected through wage garnishment are ineligible for consolidation until the order is lifted
How to refinance
The process for refinancing student loans differs depending on the lender you choose. Usually, the lender’s website offers online applications for refinancing. You’ll have to indicate which of your loans you want to refinance.
The lender will check your financial record and credit score. The financial history will decide the new interest rate you get and if you qualify to refinance. Typically, you’ll need a credit score in the high 600s. If you do not meet the eligibility requirements, you can apply with a co-signer who does.
Be sure to thoroughly read the lender’s terms and understand the repayment period to ensure it fits into your financial plan.
The process of consolidating or refinancing is simple, and consolidating or refinancing offers the convenience of having a single monthly payment. Also, refinancing offers a lower interest rate on your loan. If consolidating or refinancing is right for you, visit the lender’s website to start your application!