Should I consolidate or refinance my student loans? | Consumer Financial Protection Bureau

There are two types of consolidation loans. The type of consolidation loans available to you depends on whether you have union or individual scholar loans .

Federal Direct Consolidation Loan

If you have federal student loans, you have the choice to combine all or some of your federal student loans into a federal Direct Loan Consolidation. This choice is merely available to consolidate federal scholar loans and not private student loans. federal lend consolidation will not lower your matter to rate. The pay back interest rate for a Direct Consolidation Loan is the slant average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percentage. While consolidating your loans may slenderly increase your interest rate, it will lock you into a fixed interest rate, so your newfangled payment won ’ deoxythymidine monophosphate transfer over fourth dimension. If you have federal loans originated under the Federal Family Educational Loan ( FFEL ) course of study or the Perkins loanword program, you may be able to consolidate those loans into a fresh Direct Loan to qualify for Public Service Loan Forgiveness ( PSLF ).

Tip! On Oct. 6, 2021, the U.S. Department of Education ( ED ) announced a temp period during which borrowers may receive recognition for payments that previously did not qualify for PSLF or Temporary Expanded Public Service Loan Forgiveness ( TEPSLF ). Get current PSLF steering and learn more about this limited time opportunity. Learn more about what type of loanword you have and get information about your federal scholar loans .

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Private consolidation loan

A private consolidation loanword or refinancing a student lend allows you to combine all or some of your scholar loans, private and federal scholar loans, into one larger private consolidation loan through a private lender or trust. If you are approved to refinance or consolidate your existing individual student loans into a raw individual loanword, the terms of the consolidation lend may allow you to lower your pastime rate, lower your monthly payment by extending the length of the refund term, or release a co-signer from your scholar loanword.

It is possible to consolidate union and/or private scholar loans into one secret consolidation loan. Consolidating federal scholar loans into a secret consolidation lend has risks. You should weigh the benefits and risks of refinancing your federal student lend into a individual student loan, because changing from a federal to a secret scholar loan eliminates some of these protections and benefits .

  • Look closely if you are switching from a fixed rate loan to a variable rate loan. Interest rates for most federal loans have fixed rates, which means that you never have to worry about your interest rate and monthly payment going up if interest rates rise in the future. If you switch to a private variable rate loan, your interest rate could rise above the original fixed rate, and your payment could go up.
  • You will no longer qualify for certain repayment programs or plans. Federal student loans provide options for borrowers who run into trouble, including income-driven repayment

    (IDR). If you consolidate with a private lender, you will lose your rights under the federal student loan program, including deferment, forbearance, cancellation, and affordable repayment options .

  • You will probably lose certain benefits if you refinance. Borrowers working in public service or as teachers in certain low-income schools may be able to get loan forgiveness for certain federal loans. If you refinance your federal loan with a new private student loan, you will no longer be eligible to participate in these federal loan forgiveness programs. You may also lose the protection of loan discharge or forgiveness in the case of death or permanent disability, which you get with federal student loans. Not all private loans offer loan discharge benefits or forgiveness in the case of death or permanent disability.
  • Active duty servicemembers might also lose benefits on pre-service obligations if they refinance. If you are a servicemember on active duty, you are eligible for an interest rate reduction under the Servicemembers Civil Relief Act (SCRA) for all federal and private student loans taken out prior to the start of your service. If you consolidate your loans while serving in the military, you will lose the ability to qualify for this benefit.

If you have a guarantee caper, hand brake savings, impregnable credit, and are unlikely to benefit from forgiveness options, then refinancing federal scholar loans into a private scholar lend may be a choice deserving considering. Warning: Just remember that, under current law, once you refinance your federal loans into a private lend, you can ’ t turn your loans back into federal scholar loans or get any of the benefits of the federal student lend plan .

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