Should I Refinance?

Every student loan situation is unique – find out if refinancing could be the right decision for you.

Guide to Refinancing Your Student Loans

Refinancing your federal and/or private student loans can be a great way to consolidate payments, and potentially save money on interest over time. However, refinancing may not be the best option for everyone. Check out the info below to learn more about the pros and cons.

Pros

  • Less paperwork and one easy payment
  • Potentially save money on interest and lower long-term debt
  • You could lower your payment to help with monthly cash flow

Cons

  • Potential loss of certain borrower benefits of federal loans
  • You could extend your payments over a longer repayment term in exchange for a lower month payment
  • You may increase your monthly payment in exchange for lower long-term debt

FAQs of Refinancing Your Student Loans Questions

FAQs of Refinancing Your Student Loans Questions

What is the difference between federal “consolidation” and private loan “refinance”?

A Direct Consolidation Loan from the federal government allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment for your federal student loans at one interest rate instead of multiple payments.

Refinancing your student loans involves working with a private lender like your credit union. This lender will pay off your existing loans (which may include private and federal loans) and combine them through consolidation. You will then make a single loan payment to the new private lender.

Federal Direct Consolidation Loan:

  • A Direct Consolidation Loan has a fixed interest rate for the life of the loan. The rate is based on the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of 1%. There is no cap on the interest rate of a Direct Consolidation Loan.
  • Is free through the federal government. You can apply for a Direct Consolidation Loan through StudentLoans.gov.
  • Private loans cannot be consolidated
  • A Plus loan made to the parent of a dependent student cannot be passed on to the student during the consolidation
  • Repayment term can be readjusted between 10-30 years

Keep in mind that by consolidating your federal student loans, you may lose certain borrower benefits from your original loans.

Private student loan refinance:

  • Interest rate may be fixed or variable, and is based on your financial and credit history
  • Refinance and combine both federal and private loans into one payment (this option may vary by credit union for Student Choice refinance loans)
  • You could potentially experience a reduction in your interest rate.
  • Federal repayment programs such as income-based repayment, unemployment deferment, loan forgiveness program will no longer be available.

What does it mean to refinance my loans?

Once your student loans have entered grace or repayment, you may have the option to refinance (and consolidate) them into a new loan with a private lender. This means you can combine multiple loans into one new loan, with one payment and one interest rate.

Can I combine federal and private loans?

If you utilize the federal government’s consolidation program, you may only consolidate your federal loans. If you choose to refinance and consolidate your loans with a private lender, you may be able to combine both federal and private loans (this may vary by the lender you choose). Keep in mind that by refinancing your federal student loans with a private lender, you will lose certain borrower benefits from your original loans.

Are there reasons why I wouldn’t want to refinance my loans?

You will likely have a longer repayment term for your refinance loan. This means your monthly payments may be lower, but it also means you could be paying more money in interest in the long run.

If you’re refinancing federal loans, you are no longer entitled to the repayment options and borrower benefits you’d normally get through your federal loan—like income-based repayment, unemployment deferment, loan forgiveness programs, and a grace period.

Who can help me decide if I should refinance my student loans?

Student Choice’s College Access Counselor is an excellent resource for discussing your consolidation and refinance options. You can schedule a free, one-on-one phone appointment here.

3 Signs You Should Consider a Refi

 

  • You're paying a high interest rate on your loans
  • You have multiple private student loans and/or higher rate federal loans
  • You have a good credit history or a strong co-signer
Read More

 

Continue Reading to Learn More

Refinancing your student loans can be a great way to consolidate payments and potentially save money on interest over time. However, refinancing isn’t the best option for everyone. Review these articles to learn more about the pros and cons, then visit our Student Loan Refinance page for more program details.

Find a Credit Union & Apply

Student Choice lending solutions are available from nearly 250 credit unions nationwide. Use our search tool to find a credit union near where you live or attend school, or click here to view our entire list of participating credit unions by state.

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