Can You Refinance a Federal Student Loan?

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There are savings to be had from refinancing federal student loans, but you could lose federal benefits associated with federal loans. Federal borrowers need to understand their choices, including trade-offs.

First things first, know that federal student loans cannot be refinanced through the federal government, only consolidated. Meaning you can refinance your federal student loans into private student loans. Private lenders offer private loan refinancing so you can find lower interest rates.

Student loan refinance rates vary and depend on the private lender and your financial situation. If you are in massive student debt and potentially facing economic hardship,  private loans may offer you a way to save money.

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What Does Refinancing Federal Student Loans Mean?

Federal student loan borrowers may consider refinancing student loans if they have high-interest federal loans. Student loan refinancing combines multiple loans or all loans into one new loan, often at a lower interest rate.

A private lender pays off your remaining loan balance from your federal student loans and gives you a new loan with new terms. These private loans are often variable-rate loans. Variable interest rates are subject to changes in the market. Your student loan payment may go up or down depending on how your interest rate is affected.

You may lose access to federal loan benefits. Like interim loan payment relief through authorized grace periods (deferment or forbearance) or when you cannot make monthly payments due to economic hardship, completing your education, or active duty in the military.

How Do You Refinance Federal Student Loans?

Student loan refinancing can only be done using private student loans. Private loans may offer lower interest rates but may require a soft credit check and automatic payments. Consider whether you were eligible for federal benefits with your loans to weigh the pros and cons before refinancing federal student loans.

  • Decide if student loan refinancing is the best option for you
  • Check your credit report
  • Check rates with multiple lenders
  • Ensure you have all documentation
  • Choose a private lender and private loan terms
  • Consider a co-signer
  • Read loan terms carefully
  • Apply for private student loan refinancing

Check out what can happen if you don't pay your student loans.

Does Refinancing Federal Loans Give a Lower Interest Rate?

By refinancing your federal student loans, you may qualify for a lower interest rate. You can typically choose between a variable-rate loan or a fixed rate when you refinance your debt. After choosing the type of loan you'd prefer, the rate you're given depends on your credit report and the refinancing lenders.

Should I Consolidate or Refinance Federal Student Loans?

If you're wondering if you should consolidate or refinance your federal student loans, you need to understand the differences. Consolidated and refinanced are used interchangeably, but they have different meanings.

Student loan refinancing is when a business acquires all of your outstanding student loans and gives you a fresh loan to pay them off. You'll get a new rate, but you might forfeit unique advantages like income-driven repayment and the ability to make flexible payments.

Federal consolidation will not lower your interest rate. Multiple federal student loans can be consolidated into one loan with a fixed rate loan, a weighted average of all your loan rates. Most federal student loans can be consolidated through the Direct Consolidation Loan Application, while some private student loans can be consolidated through private lenders.

Frequently Asked Questions About Refinancing Federal Student Loans

During your college life, you may have questions about refinancing federal student loans or how can help you. Below you will find answers to some of the most frequently asked questions about refinancing federal student loans.

Can refinanced federal student loans be forgiven?

By refinancing federal student loans, you forfeit any student loan forgiveness programs, including teacher loan forgiveness and public service loan forgiveness. Loan forgiveness programs help students lower and sometimes eliminate their student loan debt. If you wish to receive federal student loan forgiveness, consider the consequences of refinancing federal student loans.

What are the requirements for refinancing federal loans?

Lenders have different eligibility standards for refinancing student loans, but many may share the same fundamental requirements. For example, a good credit score, stable income, debt-to-income ratio, and other factors.

What credit score should I have to refinance federal loans?

According to Forbes, the minimum credit score among lenders was 670 or 680. A good credit score is anywhere from 670-739. However, an excellent credit score is bound to get you lower interest rates on your loan repayment term.

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