Key takeaways

  • You can consolidate federal student loans to get a different servicer; you may get a longer repayment term that decreases your payment but increases total interest.

  • You can refinance your student loans to a private lender and get a lower interest rate and different repayment term. Federal borrowers shouldn’t refinance right now.

  • You can transfer Parent PLUS loans to your child through refinancing privately and serve as a co-signer if your child doesn’t meet the requirements on their own.

Transferring your student loan to another lender can get you a lower interest rate and different repayment term. It could also allow you to transfer a parent loan to your child.

But just as no one loan is right for all borrowers, no one method for transferring a loan is right for everyone.

The way you should go about it depends on your current situation and what you want to get out of a new loan and lender. Consider these options.

Options for federal student loan borrowers

Federal student loan consolidation

Federal student loan consolidation won’t change your lender, but it will allow you to choose a new student loan servicer. This process lets you combine several federal student loans into a single, easier-to-manage federal student loan. While it does not reduce your interest rate, it can lower your payment by extending the term. The downside is that the extended term will mean you pay more over time.

Consolidation might be right for you if:

  • You are unhappy with your servicer or have several servicers and want to simplify your loan under one.

  • You want to decrease your monthly payment amount.

  • You have variable-rate federal loans and want to switch to a fixed rate loan.

Consolidation isn’t right for you if:

  • You want to pay off student loans faster.

  • You want to decrease your total repayment amount.

Private student loan refinance

Refinancing your federal student loans means that your loans will move to a private lender. Doing this can get you a lower interest rate and give you the flexibility to choose a shorter or longer repayment term.

While refinancing can be a good option for decreasing your loan payments or decreasing the amount you’ll pay on your student loans overall, now is not the right time for federal student loan borrowers to refinance. Federal student loans are currently in an interest and payment-free forbearance until October 2021. Refinancing will cause you to lose that benefit. You will also lose access to other federal student loan benefits by refinancing to a private lender.

After the interest-free forbearance period is over, refinancing might be right for you if:

  • You have solid finances, a strong credit profile and a stable income to help you qualify for a low rate.

  • You won’t need access to federal student loan benefits, like IDR.

Student loan refinancing isn’t right for you if:

  • You’ll need access to federal student loan benefits.

  • You don’t qualify for a lower rate than what you currently have.

Options for private student loan borrowers

If you have private student loans, refinancing will get you a different lender with a new interest rate and repayment term.

Unlike with federal student loans, private student loan borrowers don’t risk losing any benefits by refinancing. So take advantage of refinancing if you have private loans and can qualify for a lower interest rate.

Private student loan companies offer their lowest rates only to those with the strongest financial and credit profiles. But you can save money — monthly or in total repayment — even if you don’t qualify for the lowest advertised rate. And you can refinance as many times as you qualify, so check your student loan refinance rates periodically.

Lenders typically look for these qualifications for refinancing:

  • Credit score in the high 600s.

  • Debt-to-income ratio below 50%.

  • A degree from a qualifying institution.

If you don’t qualify on your own, you might still be able to refinance with a qualified co-signer.

Options for Parent PLUS borrowers

If you took out federal Parent PLUS loans and are looking to have them transferred to your child, refinancing can provide a pathway.

To do this, first identify Parent PLUS refinance lenders that allow loan transfers. Have your child prequalify with multiple lenders to see where they can get the best rate.

If your child meets the lender’s qualifications on their own, you can fully transfer the loan to them.

If they don’t, you can serve as a co-signer on the refinanced loan and work with them to meet the lender’s co-signer release requirements. Many lenders allow co-signer release after a set number of successful payments.

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