Federal Student Loan Refinancing

Currently, the Department of Education does not offer federal student loan refinancing. It only offers federal student loan consolidation through their program called direct consolidation loan. Refinancing means; paying off your existing student loans by taking on a new loan. A lender basically pays off your existing student loan and gives you a new loan with new terms. It is an option that borrowers with federal student loans can take to make their loans more manageable and to lower their monthly payments.Student Loans 04

Refinancing is typically done together with consolidation whereby all your student loans are rolled up into one new loan with a better interest rate. Most students leave college with a number of different federal loans that have varying interest rates. Managing all these payments with their different interest rates can be quite challenging. You make it easy on yourself by consolidating all your federal loans into one new loan using the department of education’s direct consolidation loan program and make only one payment per month. Consolidating your federal student loans not only gives you an average interest rate of all your loans but it also allows you to select a new payment plan such as; pay as you earn, income-based repayment, to mention but a few.

Consolidation and refinancing may seem similar by virtue of being used together or interchangeably by many people, but they are in fact distinctively different. Both options replace the old terms of your loans with new terms making the new loans completely different from the old ones. The interest rates, however, can only decrease when you refinance your loan. In a federal loan consolidation, the interest rates for all your loans are averaged and rounded off to the nearest one-eighth of a percent.

Student Loans 05The main benefit of refinancing your student loan is the possibility of a lower interest rate on your student loan though this is entirely dependent on your credit score and if you have a cosigner. However, refinancing means that all the protections that come with federal student loans go away. These are; pausing repayments and loan forgiveness. In consolidation, these protections remain, and you can also choose the servicer you want to work with.

Although the option of refinancing student loans, federal or private, is currently nonexistent, you can refinance your student loan into a private loan. Private lenders refinance both federal loans and private loans. They give borrowers the option of either a fixed rate loan or a variable rate loan. Their refinance rate is based on financial factors such as the credit score of a borrower.

Legislators have made proposals to make federal student loan financing an option, and it is currently in the pipeline. However, even with bills such as Hillary Clinton’s “New college compact” set to make their way to Congress, the possibility of federal student loan financing becoming law any time soon is low.

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Craig Easton

Hello my name is Craig and I would like to share tips and ideas on what career best fits your personality and the education you need to achieve that career. Enjoy everyone!