While there are options to consolidate your federal student loans, there is no option to refinance federal loans through the government.
However, this doesn’t mean you can’t refinance federal student loans. You can, but you will have to do this through a private lender. Before we get to the “how?” let’s cover the “why?” first.
The primary reason why students may want to refinance their federal student loans is to save money.
Market conditions and interest rates fluctuate regularly. The interest rate on federal student loans is fixed at the time the student applies for the loan. On fixed-rate loans, this rate stays the same till the loan is paid off in full.
When you applied for a loan, the rates may have been higher. You would then continue paying this same rate of interest throughout the life of the loan, even if rates have dropped since. The only way to lower the rate of interest is by refinancing your federal student loans.
When you refinance your student loans, you are actually taking a new loan to pay off the old loan. The new loan comes with new interest rates and new terms, both of which can benefit you. Even a point percent reduction in interest rates can make a considerable difference to the total cost of your loan.
To refinance your federal student loans, you will have to apply with a private lender. The lender will first take a look at your credit history, then give you a quote. A high credit score will qualify you for a lower interest rate.
You can also choose to lower your monthly payments by extending the life of your refinanced loan. However, this does mean it will take longer to repay your loan, but in the short term it can be easier to handle.
Some federal student loans come with borrower benefits such as income-based repayment options and public service forgiveness. The biggest downside to refinancing federal student loans is that it converts your federal loans into private loans. You will lose any federal benefits.
If you think you may want the perks associated with your loan sometime down the road, it’s better not to refinance. Instead, look for other ways to save money.
If you do not intend to use your federal student loan perks, then the money you save makes it worth refinancing. Don’t rush into it, however. Take time to check your credit score and to compare lenders for the best interest rates.
If you want to refinance your federal student loans, you will have to do it through a private lender. This is only worth it if you can snag a lower interest rate on your new loan. Before you apply for refinancing, it’s important to decide whether or not you wish to avail of your federal loan protections.
We hoped you enjoyed this article! Remember, you can compare your personalized rates with our lending partners and potentially lower your monthly student loan payments and save money.