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    How to Consolidate and Refinance Student Loans

    By Kayla Korzekwinski

    Kayla Korzekwinski is a Scholarships360 content writer. She earned her BA from the University of North Carolina at Chapel Hill, where she studied Advertising/PR, Rhetorical Communication, and Anthropology. Kayla has worked on communications for non-profits and student organizations. She loves to write and come up with new ways to express ideas.

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    Updated: May 7th, 2024
    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!

    Read more: How to spot student loan scams

    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.

    See also: Student loan consolidation vs. refinancing 

    How to consolidate

    The application for federal student loan consolidation can be completed for free online. You can consolidate federal student loans at 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

    Related: Best student loan repayment plans

    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!

    Keep reading: Student loan default: What it is and how to avoid it and How long does it take to pay off student loans

    Next Steps

    Next Steps

    • Your first step for refinancing and consolidating your loans is to find a plan that you would like to transfer your loans into. If you’re looking into refinancing, this will involve using a student loan marketplace to find a new servicer. If you’re looking to consolidate, you’ll want to look at the current plans offered by your servicer, and talk to them to find out what you qualify for.
    • Your next step will be to familiarize yourself thoroughly with the terms of the plan you are considering switching to. Make sure that you are well-educated in the difference between variable and fixed interest rates. You’ll want to choose the option that fits you best.
    • If you are refinancing, make sure to find a qualified cosigner if your credit score is not good enough.
    • Good luck with the process, and make sure to check back on our site if you have any further questions!

    Key Takeaways

    Key Takeaways

    • Consolidation allows you to combine multiple federal loans into one without modifying the interest rates on any of them
    • Consolidation can allow you to modify your repayment period, thereby changing your overall monthly payment
    • Refinancing involves selling your debt to another loan servicer
    • This has the potential to modify your interest rate, monthly payments, and other repayment terms

    Additional resources

    Remember, refinancing and consolidating is not your only option to change your repayment plan. You might qualify for an Extended Repayment Plan, an income-driven repayment plan, or to defer your loans. These can be great ways to lower your payments. But typically, these options are only available for federal loans. If you are considering refinancing federal loans into private ones, you will probably lose those opportunities, so make sure to investigate them before you make the decision. Keep reading to learn more about how to pay off student loans and grants to pay off student loans.

    Final thoughts

    Most importantly, remember to stay on track with your payments to avoid defaulting! Student loan default will end up in you paying more money back and hurting your credit score. Good luck, and make sure you apply for all the scholarships you qualify for while eligible!

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