Can You Refinance After Student Loan Consolidation?

Refinancing federal student loans that you’ve consolidated can save you money, but it will cost you borrower protections like access to loan forgiveness and income-driven repayment plans.

Refinancing a consolidated student loan can be a good idea if you qualify for a lower interest rate. But moving your loans from the federal government to a private lender will cost you access to programs offered by the U.S. Department of Education.

If you’re considering refinancing to save money over the life of the loan, you may want to hold off on taking advantage of that new interest rate right now. The interest-free payment pause for federal student loans will continue until August 31, 2022. If you refinance now, you’ll have to start making monthly payments immediately.

It’s a good idea to use this time to build your credit score and pay down credit card debt. This may make it easier for you to get a lower rate on a refinanced loan when the Covid-19 forbearance ends.

Refinancing federal student loans doesn’t make sense if you’ve had difficulty making the student loan payments due on your consolidation loan. Private lenders offer little help if your income drops.

The best options many lenders offer are to temporarily pause payments with a deferment or forbearance or let you make interest-only payments for a brief period of time. But once that relief ends, you’ll have to make the payments the loan servicer is demanding. If not, you’ll risk defaulting.

Refinancing a consolidated federal student loan also may be a bad idea if you’ve worked full-time for the government or nonprofit anytime after October 2007. You may lose eligibility to get retroactive credit for relief under the Public Service Loan Forgiveness Program. Read more about the PSLF limited waiver.

The help the federal government is offering borrowers during the pandemic is unprecedented. And lawmakers continue to push for additional tweaks and overhauls to increase federal student loan borrowers’ relief, including the cancellation of $10,000 of student loan debt.

While there’s no guarantee widespread loan cancelation will happen, If you refinance student loans, you’ll likely miss out on that benefit and others.

Learn More: How to Lower Student Loan Payments

Federal student loan consolidation combines your federal loans into a single loan made under the Direct Consolidation Loan program. This process won’t change your interest rate. Still, it could make you eligible for better repayment options and help qualify you for loan forgiveness programs. You’re eligible to consolidate even if you have a spotty credit history.

Private student loan refinancing — also called private student loan consolidation — refers to paying off your existing federal or private student loans and getting a new private loan. You’ll need good credit or a cosigner to get the most competitive rates. You can also choose between paying a fixed or variable interest rate. Many lenders limit the amount they’re willing to refinance.

Look to refinance your consolidation loan only after becoming comfortable with no longer qualifying for federal loan benefits. Student loan refinancing can offer you long-term savings, especially if you have high-fixed interest rate Parent PLUS Loans. Read more about Parent PLUS Loan repayment options.

You’ll need good credit (ideally a FICO score in the 700s), stable income, and a low debt-to-income ratio to qualify for the best student loan refinancing repayment terms. You can also add a cosigner to strengthen your application.

You can shop around using an online marketplace like credible.com. You’ll be able to compare rates and loan terms without a hard credit check.

Once you find a few offers you like, submit loan applications to each lender within a short window. The multiple inquiries will be treated as one on your credit report.

Learn More: How Does Student Loan Refinancing Affect Credit?