August 24, 2021

Can You Consolidate Private and Federal Student Loans?

Repayment

You can consolidate private and federal student loans into one policy through refinancing. This entails consolidating student loans by getting a new private loan to pay off your existing loan balances.

Refinancing may be an ideal option if you currently have better credit than when you first got your loans, meaning you could qualify for better rates this time around. However, you will lose any federal student loan benefits you have when you combine them with private student loans.

Consider the following advantages and disadvantages of consolidating private and federal student loans.

Pros of Consolidating Private and Federal Student Loans

Refinancing would make financial sense if you prioritize saving money. Here are some reasons why a borrower would choose this option:

  • Single monthly payment: You will have one simplified monthly payment when you consolidate student loans through refinancing.
  • Lower interest rates: Your current financial and credit situation may qualify you for better rates when you apply for a new private student loan, which may lower your monthly payments. Likewise, you may lessen the total interest you pay over time.
  • Reduced repayment time: Better rates and lower monthly payments may reduce the time to completely pay off your student debt.

Cons of Consolidating Private and Federal Student Loans

Refinancing may not be your best option if you intend to utilize federal student loan benefits. Consolidating private and federal student loans means getting a new private loan, meaning you will lose the following federal student loan benefits:

  • Deferment or forbearance: Federal student loan borrowers generally qualify for student loan deferment or forbearance in certain situations. One example is the current student loan freeze the Biden administration placed on federal student loans, granting borrowers some financial relief until the end of September. Review your federal student loans if they qualify for deferment or forbearance before refinancing.
  • Student loan forgiveness: Your federal student loans may qualify for forgiveness through federal programs such as the Public Service Loan Forgiveness (PSLF) Program and the Teacher Loan Forgiveness You may want to reconsider your options if you intend to use these federal student loan benefits, especially if you work in public service or education.
  • Income-driven repayment plans: Eligible borrowers may utilize federal student loan repayment plans that adjust according to their income. These income-driven repayment plans provide some financial relief for borrowers who may be earning less than they expect. Consider reviewing your financial situation and confirm whether you qualify for such repayment plans, which may be more practical options than refinancing.

So, Can You Consolidate Private and Federal Student Loans?

Yes, you can consolidate private and federal student loans through refinancing. Doing so means getting a new private student loan to pay off your existing student loan debt. As such, you would give up federal benefits because private lenders may not honor the same benefits in their institution.

You may consider refinancing if federal student loan benefits do not apply to your case. With a new private student loan, you may qualify for better rates. Accordingly, you could lower your monthly payments and reduce the time it takes to completely pay off your student debt, assuming that you are in a better financial condition and have higher credit scores this time.

Be sure to review your situation and confirm whether your federal student loans qualify for certain benefits before consolidating. Also, consider speaking with student loan advisors who can assess your financial and credit situation to determine whether refinancing is your best option.

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