You can consolidate multiple student loans into one if you want to simplify your bills. Cue sigh of relief.
The tricky part is that there’s only one way to consolidate your private and federal loans together: through a private company. It’s easy to confuse that process, also called refinancing, with federal student loan consolidation. But the federal version applies only to loans made by the government.
If you’re thinking about private student loan consolidation, let’s answer some common questions first.
In this article
Can you consolidate private and federal student loans?
What happens when you refinance federal student loans?
Can you refinance student loans with bad credit?
Can you refinance a consolidated student loan?
What companies refinance student loans?
1. Can you consolidate private and federal student loans?
Banks and private financial firms will allow you to consolidate federal and private loans together through a process called student loan refinancing. The federal government will not. That means that if you want to combine both types into a single student loan, it will result in a new private loan.
Policymakers have proposed legislation allowing the federal government to refinance federal and private student loans together. Borrowers who refinance their loans through the government would be able to take advantage of lower interest rates than they originally received. But until a bill is passed, private refinancing is the only way to combine both loan types into one.
» MORE: 5 myths about student loan consolidation
2. What happens when you refinance federal student loans?
Turning federal loans into private ones means the government no longer owns them, and you can’t take advantage of some benefits that only federal loans offer.
“Before anybody consolidates, some of the big things to look at are definitely, ‘What am I going to lose?’ ” says Susan Hillebrandt, a learning and development specialist at Money Management International, a nonprofit credit counseling agency.
When you consolidate federal loans into a private loan through refinancing, you’ll lose the option to sign up for income-driven student loan repayment plans. These plans can keep your monthly payments affordable if your income drops. You’ll also no longer qualify for student loan forgiveness programs that cancel your balance after a period of time if you work in public service.
Many private lenders will let you postpone payments for a few months at a time if you lose your job. Rhode Island Student Loan Authority, a refinancing lender, even offers an income-based repayment plan modeled on the government’s program. But that’s not common among private lenders. Keep your federal loans separate if you think you may need federal loan protections in the future.
» MORE: 4 signs you’re ready to refinance federal student loans
3. Can you refinance student loans with bad credit?
Refinancing lenders are able to offer lower interest rates because they take your financial history into account. The more likely you are to pay back your loans on time, the better the rate you’ll receive.
That means it can be tough to get a privately refinanced loan if you have a credit score below 680, or if you have no credit. You can use a co-signer to help you qualify or to ensure you receive a lower interest rate. You can also build your own credit over time and apply to refinance later on.
“Make sure you’re making payments on time to see if you can, over the next year or maybe even two years, increase your credit score,” Hillebrandt says.
You can also ask your local credit union if it offers student loan refinancing. It may be able to work with you even if larger companies won’t.
4. Can you refinance a consolidated student loan?
Most lenders will refinance any federal or private loan used to pay for your education, as long as you’re listed as the borrower. Some will also refinance parent PLUS loans from your parent’s name into yours.
A previously consolidated federal student loan is fair game, and so is a consolidated private loan. The lender will ask you to provide documents from your current lender to show you borrowed the loan and how much is left to repay. The company will then pay it off and issue you a new private loan with its own interest rate and repayment schedule.
» MORE: NerdWallet’s guide to federal student loan consolidation
5. What companies refinance student loans?
Student loan refinancing is a growing industry, and so far more than a dozen companies offer it. Your options include:
- Citizens Bank
- CommonBond
- CordiaGrad
- Darien Rowayton Bank
- Earnest
- iHelp
- LendKey
- Rhode Island Student Loan Authority
- SimpleFi
- SoFi
- U-fi
Lenders such as Pave and Upstart also offer personal loans that you can use to pay off your student loans, which may save you money if you receive a personal loan at a lower interest rate. But that’s not the best option for everyone.
You can apply to refinance student loans with up to eight of these lenders through NerdWallet’s partner Credible, a refinancing marketplace. Fill out one central application and receive offers from the lenders whose criteria you meet.
» MORE: How to choose the best student loan refinancing offer
Next steps
Before you refinance your student loans with a private company, make sure you understand the process and whether you’re a good candidate for it. Asking yourself these 10 questions is one place to start.
Credible’s calculator below can also give you an idea of how much you could save if you refinance. Shop around so you end up with the refinanced loan that will give you the interest rate, monthly bill and repayment benefits you’re happy with.
Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.
Image via iStock.
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