How to Consolidate Federal and Private Student Loans

Ben Luthi

Consolidating private and federal student loans together can help simplify your repayment plan and possibly even save you money. However, there are some differences between federal and private student loan consolidation, and if you want to do both together, it’s important to know how to do it correctly.

Here’s what you need to know about consolidating private and federal loans both separately and together.

Can I consolidate federal and private student loans?

Student loan consolidation describes the process of replacing multiple existing loans with one new one, thereby combining all your monthly payments and loan terms into one.

It’s possible to consolidate federal and private student loans together and separately. But there are some limitations with the federal loan consolidation program — specifically, you can only consolidate federal loans.

If you only have federal loans, that may not be a problem. And if you want to keep your federal loans with the U.S. Department of Education, there are several benefits to doing so, including:

  • Keep your access to income-driven repayment plans and loan forgiveness programs (federal loan consolidation could even give you access to certain plans and programs you didn’t qualify for originally).
  • Replace several monthly payments with just one.
  • It can help you get out of default if you meet certain requirements.
  • It doesn’t require a credit check.

That said, when you consolidate federal loans with the Department of Education, your interest rate may increase slightly — your loan servicer will take the weighted-average rate of your current loans and round it up to the nearest one-eighth of a percent.

With private lender refinancing, you can consolidate federal and private student loans, giving you more flexibility. There are, however, some potential pitfalls to consider as well.

How to consolidate private and federal loans through refinancing

The concept of consolidating private and federal student loans with a private lender is similar to consolidating federal loans with a federal loan servicer. There are, however, some key differences to keep in mind.

With private student loan refinancing, you can compare multiple lenders based on their interest rates, fees and other features. Unlike the federal loan program, private lenders typically offer a range of interest rates based on your creditworthiness. You may also have the choice between fixed and variable interest rates.

When you apply with a private lender, they will run a hard credit check to determine your eligibility and the terms you qualify for. If you’re eligible for a lower interest rate based on your creditworthiness (or the creditworthiness of a cosigner if you have one), you could not only simplify your repayment plan but also save money.

For example, let’s say you have $20,000 in federal student loans and $10,000 in private student loans. The average interest rate on your federal loans is 5%, and the average for your private loans is 8%. All your loans have a 10-year repayment term.

If you qualify for a 6.5% interest rate with a refinance lender, it may not make sense to consolidate federal and private student loans together. But if you refinance just your private loans, you’ll still save $8 per month and $934 in total interest charges.

Now, let’s say you’re eligible with a cosigner for a 4.5% interest rate. In this scenario, consolidating private and federal student loans together makes more sense. If you were to accept the loan, you’d save $22 per month and $2,658 in interest over 10 years.

That said, there’s no guarantee you’ll qualify for a lower rate than what you’re currently paying. Also, refinancing federal loans with a private lender causes you to lose access to certain benefits, including access to loan forgiveness programs and income-driven repayment plans. So, it’s important to consider your situation and options before pulling the trigger.

In the right situation, however, student loan consolidation for federal and private loans with a private lender can make a big difference in your financial life.

How to find the right lender for private and federal loan consolidation

There are many private student loan refinance lenders out there, and it’s essential to shop around to find the right fit for you. Each lender has its own set of interest rates and other features, as well as criteria for determining your eligibility.

Many private lenders allow you to get prequalified, which can give you an idea of what interest rate you’re eligible to receive. But visiting each lender’s site to go through this process can be time-consuming.

With the Purefy rate comparison tool, you can compare multiple lenders in one place. Simply share a little information about yourself and how much you’re looking to consolidate, and you’ll be able to view and compare offers from the top lenders, side by side. This process involves a soft credit check, which doesn’t affect your credit score – you can also just estimate your credit, if you prefer. 

From there, you can apply with the lender of your choice, at which point it will run a hard credit check to give you a final offer.

As you compare lenders, it’s important to consider more than just the interest rates. Other important features include:

  • Repayment term options: If you want to pay off your debt sooner or get a lower monthly payment with a longer term, check to see how flexible each lender is with their options.
  • Fees: None of the lenders that Purefy has selected for the rate comparison tool charge origination fees or prepayment penalties.
  • Rate discounts: Some refinancing lenders offer interest rate discounts if you set up automatic payments. If you qualify, these discounts could help you save more money.
  • Cosigner release policy: If you have a cosigner on your new loan, some lenders allow you to request to have them released after you’ve met certain payment and creditworthiness requirements. Those terms can vary from lender to lender, and some don’t offer cosigner release at all.
  • Other features: In addition to the others we’ve discussed, some lenders offer more features than others to their borrowers. Look for things like deferment and forbearance options, unemployment protection and other terms that can provide value for you down the road.

Because every situation is different, and you may have different preferences and goals than other borrowers, it’s important to know what you want in a lender to make sure you find the right fit.

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