Students often look into how to refinance private student loans to federal.
Although transferring your loans from private to federal isn’t possible, there could be alternatives to consider.
Let’s review the different ways to get several loan benefits while also managing your student loan debt.
What Are Private Student Loans?
As their name suggests, private student loans are sums of money received from private institutions.
Most students agree that federal avenues are the first place to look at getting money for school.
However, some individuals might find that private lenders are a better alternative, depending on their situation.
Banks are a great example of private lenders that provide student loans for you to take advantage of.
It’s also easy to find hundreds of companies specifically designed to provide student loans as their sole business practice.
All of these institutions typically have a minimum and maximum amount that they offer for different degree types.
It’s also important that before applying, you look at each institution’s eligibility requirements.
Private lenders can set their own list of requirements that applicants must meet to be eligible for financial assistance.
For example, you might need to be in specific degree programs, have obtained a particular degree, have a great credit score, and more.
What Are Federal Student Loans?
On the other end of the spectrum, students can consider obtaining federal student loans.
Unlike private lenders, this money comes directly from the government and will be repaid to the government.
One of the most considerable advantages of federal student loans is that they often come with perks.
For example, you can get financing for various degree types, use a co-signer, and even have loan forgiveness if eligible.
Another massive advantage of federal student loans is that your credit score is often not considered when determining eligibility.
Instead, students will submit a FAFSA (Free Application for Federal Student Aid) annually.
Your FAFSA will determine how much money in loans and grants you’ll be able to receive.
You will also find that federal loans come with federally-chosen interest rates, which are often lower than private interest rates.
Refinance Private Student Loans to Federal: Is It Possible?
If you are the owner of a private student loan, it is impossible to refinance or transfer them to federal student loans.
Private loans are acquired from private lenders, so there’s no way to transform them into federal loans.
With that said, it doesn’t mean that you cannot access similar benefits to federal loans by keeping private ones.
The majority of students consider switching their private loans to federal ones because of the potential perks.
It is important to remember that private lenders are entirely independent of federal ones, as are their loans.
When you sign an agreement to obtain a loan from one institution, it stays in their hands and typically cannot be transferred.
This reason is why you must do plenty of background research into your prospective loans.
After all, the last thing any student wants is to be trapped in a loan with few perks.
Combining Private Student Loans and Federal Student Loans
Since it is impossible to transfer your private student loans to federal student loans, you can combine them instead.
However, this process is something done through private lenders rather than the government.
Again, you must find a lender with similar perks to what you would receive with government loans.
When you go through the process of combining federal and private student loans, you will be taking advantage of loan refinancing.
Loan refinancing has plenty of benefits in itself, such as accessing lower interest rates and managing all of your debts.
You might also find that many lenders refer to their refinancing as “consolidation” but are separate from federal loan consolidation.
How to Combine Private and Federal Student Loans
If you have determined that student debt consolidation or refinancing is right for you, the process is simple.
All you have to do is follow these basic steps.
Step 1: Find a lender.
First, you are going to need to find a private lender that offers debt refinancing or consolidation.
You will need to find lenders with certain perks, depending on your financial situation.
Some of the best things to keep an eye out for include:
- Low-interest rates
- Interest rate savings with autopay
- Flexible payment terms
- Disability forgiveness
- Low minimum loan amounts
- Limited degree eligibility requirements
- Co-signer release
Step 2: Gather estimates.
Picking a lender for your student loan consolidation is like purchasing a car; you’ll need several options to make a decision.
You will want a lender with the most benefits and one that has affordable interest rates.
It’s also important to find a private institution willing to work with your income to lower your monthly payment totals.
When you have multiple estimates available, you can choose the company with the lowest possible rates.
Using all of this data can help you make the most financially responsible decision to make paying your debts simpler.
Step 3: Choosing the right terms.
Once you know what company you want to work with and its benefits, it is time to consider your terms.
Every loan comes with terms in their agreement, such as the types of interest rates and the repayment periods.
You’ll need to choose a repayment period that fits within your budget.
Remember that although more extended payment periods mean lower monthly payments, you are paying more interest over the loan’s duration.
On the other hand, shorter terms have higher monthly payments, but you are paying less interest over the period.
Another critical factor is the type of interest rates you are signing up for.
Most lenders offer either variable or fixed interest; both can be beneficial depending on your preference.
With variable rates, the interest can fluctuate up or down, helping you put more to the principal at times.
Fixed rates can sometimes be preferred, as it is a flat-rate interest that you will pay for the duration of your term.
Step 4: Sign and wait.
As soon as you have confirmed the terms of your loan agreement, it is time to sign the documents.
You will likely need several types of documentation before being granted a loan, including:
- Proof of graduation
- Proof of residence
- Proof of employment
- Loan verification statements
- Government-issued identification
When you have submitted your documents, the next step is to wait for the loan payoff.
The loan payoff is when your current lender pays off your existing loans and compiles your debts into one.
Once this is complete, you can then begin making your new payments to the refinance lender.
What Is Federal Student Loan Consolidation?
Another situation students might encounter is managing several federal loans at once.
In these instances, it can be tempting to consolidate them into one using private lenders.
However, it is possible to consolidate federal student loans without needing the help of private institutions.
The Benefits of Federal Student Loan Consolidation
There are several key benefits to using federal loan consolidation as a student, including:
Income-Driven Payment Plans
Income-driven payment plans are often something you will need to search for when using private lenders because they are not that common.
Keeping your federal loans within the government can help you find affordable monthly repayments.
The government will work with you to determine repayment amounts that comfortably fit within your budget.
Private lenders require students to pay their student loans back as soon as they graduate, leave school, or drop below part-time enrollment.
With federal loans, the majority of students are given grace periods after graduating before payments begin.
For example, some students can be eligible for grace periods of up to six months to help them prepare for repayments.
There is no doubt that the federal government offers significantly longer terms for their loan payment plans than private lenders.
With private lenders, you will be lucky to find terms up to 15 or 20 years.
With the federal government, it is possible to get terms as long as 30 years, which is ideal for specialized degrees.
Instead of feeling like you only have a short amount of time to pay hundreds of thousands back, you’ll have more flexibility.
Also, this benefit can assist you with finding repayment plans that fit better within your budget.
The Disadvantages of Federal Loan Consolidation
Although there are plenty of great benefits to federal loan consolidation, there are also a couple of concerns.
When you consolidate your student loans, you will be signing up for a new term.
Individuals who choose extended terms will have lower monthly payments but also pay more interest.
For example, a 10-year term means you are paying interest for 10 months, while a 30-year period means interest for 30 months.
Loss of Certain Benefits
It’s important to consider the benefits included in your initial loan agreements before consolidating.
As mentioned, consolidation means you are signing up for a brand-new loan with brand-new agreements.
Some of the benefits you initially had with your first loans could be lost, such as loan cancellation benefits.
Loss of Income-Driven Repayment Plan Forgiveness Benefits
One of the most considerable disadvantages of refinancing federal loans is a potential loss of benefits to income-driven programs.
If you were on track to receive loan forgiveness through PSLF or other income-driven plans, this is important to consider.
When refinancing, your previous repayment history will be negated, so you will have to start from the beginning.
Although it is not possible to refinance private student loans to federal, you can certainly turn federal loans to private.
There is also the opportunity for students to consider refinancing their loans within the federal government as an alternative.
When managing your debts, finding the ideal type of lender with the most benefits to help with your repayments is essential.