If you’re taking out both federal and private loans, you may be wondering if you can consolidate federal and private loans after graduation. Here’s what you need to know about your options, consolidating, and refinancing.
Yes, You Can Consolidate Federal and Private Loans!
Although it wasn’t an option for years, you are now able to consolidate federal and private loans! Sadly, you can’t combine all of these loans under the federal direct consolidation loans program. However, it is possible to combine and refinance both your federal and private loans under a private lender.
If you are consolidating the debt by applying for a completely new loan under the private lender, if approved, they will pay off the previous loans and you will receive a new loan amount and interest rate.
The Benefits of Consolidating and Refinancing
One very obvious benefit of consolidating your loans is the ability to easily track your loan amounts, bills, and debt. If you previously had 3 to 4 loans, that could be a handful to keep on top of. After consolidation, you’ll only have one loan to worry about.
Refinancing also gives you the opportunity to possibly get a lower interest rate, especially when it comes to the original private loans. If you’re refinancing after graduation with a job and good credit, you could find that rate significantly dropped. This could equal smaller payments or less time needed to pay off the loan amount.
The Disadvantages of Consolidating and Refinancing
Although it is entirely possible you will pay less interest, federal loans tend to have much lower interest rates than private loans. If you have several federal loans and only one from a private lender, you may not want to consolidation and refinance your student loans. It’s important to take a look at the math before making that leap.
Private loans also don’t offer the same protections as federal loans. Often times, private loans need to start being paid back immediately, while federal loans tend to have (or offer the ability to have) a grace period. You can also request deferment or forbearance if you’re having trouble in your life or participate in programs that completely wipe away your federal debt. If your federal loans are combined under a private lender, you’ll be throwing away those benefits.
Although students couldn’t in the past, you now have the option of being able to consolidate federal and private student loans. However, just because you can, doesn’t mean it’s always the best option for you. It’s important to look at the whole picture, including current interest rates, the refinanced interest rate, and if giving up the benefits and protection of federal loans is worth it.
If you find this doesn’t work or make sense for you, you can always choose to simply consolidate your private loans under a private lender and use the federal direct loan consolidation program to combine your federal loans. You also have the option of refinancing those private loans and not consolidating if you have more than one to see if you qualify for a lower interest rate. Take a look at all of your choices to find what works best for you.