Student Loan Refinancing
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Federal student loans come with a lot of benefits, including access to loan forgiveness programs, loan repayment assistance programs and income-driven repayment plans. But is there a federal student loan refinance program?
Unfortunately, no. While the U.S. Department of Education allows borrowers to consolidate their loans and maintain their federal loan status, there’s no refinance program similar to the one offered by private lenders.
Here’s what you need to know about the federal consolidation program and how refinancing your federal loans with a private lender can impact you.
The Direct Loan Consolidation program is a federal program that offers some of the benefits that you can get with refinancing your loans with a private lender, along with some others. However, there are enough distinct differences between the two options that loan consolidation isn’t for everyone.
The Direct Loan Consolidation program combines one or more existing federal student loans into one new loan, either with your initial loan servicer or with a new one. You’re eligible to consolidate your loans once you begin the repayment process on your federal loans.
Unlike with a private refinance loan, federal consolidation doesn’t require a credit check. There are many reasons to consider doing it:
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Private student loan refinancing works similarly to federal student loan consolidation in that you’re paying off your existing student loans with a new one. However, there are some key differences that you’ll want to know before you pursue it:
Another big difference between federal loan consolidation and private loan refinancing is what you get with your loan servicer or lender.
Federal student loan servicers are notoriously difficult to work with, and many have been sued by federal regulators for violating borrower rights and providing inaccurate information about their options.
This environment may be primarily due to the fact that these private companies have contracts with the federal government and don’t need to necessarily build customer satisfaction because there’s little to no competition — when you first get federal loans, you’re automatically assigned to a loan servicer.
In contrast, private lenders must compete to get and retain your business. This doesn’t mean they don’t have their fair share of complaints and regulatory issues. But you’re much more likely to get a better customer experience with a private lender than with a federal loan servicer.
Additionally, some private lenders offer features that you can’t get with the federal government. That may include a loyalty discount on your interest rate if you already have an account with the lender, interest rate discounts on future loans, career services and more.
If you’ve had a bad experience with your federal loan servicer, it may be worth considering refinancing to improve your experience for the remainder of your repayment process. Just make sure you research potential private lenders and reviews from past and previous customers to get an idea of what you’re getting yourself into.
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There are many advantages to consider when it comes to refinancing your federal student loans. And while it might not be for everyone, here are some of the positives to think about:
Although there are some clear benefits to refinancing your federal student loans, there are also some aspects of the process that make it less appealing for some borrowers. Here’s what to keep in mind:
Carefully consider all of the pros and cons of refinancing federal student loans to decide if it’s the right fit for you and your future.
Depending on your situation, your needs and your goals, there are several options you can take advantage of to get on the right track with your payments. Here are some details:
If you’re certain that you want to refinance your student loans, or you simply want to determine if it’s a good fit for you, it’s important to shop around and compare rate quotes from multiple lenders before you submit an application.
The good news is that student loan refinance companies typically allow you to get prequalified with a rate quote without a hard credit check. This may not be your final rate, but it can give you a good idea of what you might qualify for.
That said, going through the prequalification process and entering the same information over and over with each lender can be time-consuming. One way to get around it is to use Purefy’s rate comparison tool. The process only takes a few minutes, and after you enter all of the required information, you’ll be able to compare rate offers from multiple lenders all at once and side by side.
As you compare those rates, it’s important to remember the differences between variable and fixed interest rates. Variable rates start off lower and look more attractive on paper. But considering that student loan refinance rates have seen record lows in the last year or so, the likelihood that your rate would go up over time is high.
As a result, it’s best to focus on fixed interest rates and be sure that you’re comparing fixed-rate offers to other fixed-rate offers.
You’ll also want to make sure to compare other features beyond the interest rates. Here are some other things that should be on your radar:
This process of comparing student loan refinance rates and other features can take some time, but it’s well worth it to ensure that you can maximize your savings and your overall experience.
If you’re wondering, “Is there a federal student loan refinance program?” The answer is no. While the Direct Loan Consolidation program does come with some benefits, it’s not the same as refinancing, and it can’t help you save money on your student loans.
In contrast, private student loan refinancing can provide you with savings, flexibility and better customer satisfaction. But if you refinance your federal loans, you’ll lose access to key benefits and programs that can provide you with relief. And if you qualify for loan forgiveness or repayment assistance through the Department of Education or another government agency, getting thousands of dollars in relief will surely outweigh any interest savings you might get from refinancing.
That said, if you’re considering student loan refinancing, it’s crucial that you take the time to compare several lenders based on their interest rates, repayment options, customer satisfaction and other features.
Before you decide to refinance, though, take the time to understand all of the alternatives and how they might fit your current situation and your long-term goals. While there’s no one-size-fits-all solution to student loan debt, knowing your situation and your options will give you the information you need to decide what’s best for you.
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