Hefty student loan repayments can leave you feeling cash-strapped and stressed. Fortunately, there are several options to refinance federal student loans and refinance private student loans too.
Here are four ways to refinance student loans, or save money on those bills, and more quickly repay your college debt.
The Federal Government
Technically, you can’t refinance federal loans with the federal government. But if you only have federal student loans, you can get a Direct Consolidation Loan, which consolidates all your federal college debt into just one loan, letting you make a single monthly payment.
This kind of loan consolidation can be helpful if you have multiple monthly payments and would like to streamline things.
Just realize that with federal loan consolidation, you’re taking out a new loan and the interest rate on that new loan will be a combination of all your current interest rates, rounded up to the nearest one-eighth of a percent. So while it’s possible that some of your loans will benefit from a lower rate, overall your new loan will actually be a weighted average of all your present loans, plus one-eighth of a percent.
Banks and Credit Unions
Banks like Citizens Bank, Darien Rowayton Bank, and Wells Fargo will let you combine federal and/or private student loans into a new refinanced loan. So will credit unions and community lenders such as Alliant, Lendkey and Navy Federal Credit Union. If you have high interest rates on your private loans, such consolidation can lead to big savings.
One drawback, however, is that when you refinance federal loans with a bank, credit union or any private lender, you lose the protections offered by the federal government, such as loan forbearance, deferment and potential loan forgiveness.
In recent years, a new generation of online lenders has emerged in the student loan marketplace, bringing some serious competition to traditional banks.
SoFi, CommonBond and Earnest are three of the biggest alternative lenders that let you refinance both federal and private loans, typically saving $14,000 or more. Again, refinancing any federal loans means you’d lose federal protections.
Nevertheless, SoFi, CommonBond and Earnest have all been growing like gangbusters. Each has scored enormous sums of money from venture capitalists and investors in the past year, and they all have seen their loan volume skyrocket too.
One important note: these alternative lenders all require you to have a degree in order to approve your loan. So if you dropped out of school or didn’t receive your diploma for some reason, these options aren’t for you.
Your Existing Loan Servicer
If you choose to keep your federal or private loans where they are, instead of swapping them into a refinanced private loan with another bank or alternative lender, that doesn’t mean you can’t lower your interest rate.
Many student loan servicers will cut your rate if you set up automatic payments or if you make a set number of payments. So it’s worth a call to your current lender or loan servicing company to inquire about such deals.
As long as you aren’t in student loan default, the four options listed above to refinance student loans can help nearly anyone — from recent college grads and 30-something Millennials to Baby Boomers and retirees still struggling with student loan debt.