Best Student Loan Consolidation & Refinance Lenders of 2021 | U.S. News

If you’re saddled with student debt and worried about making payments on your federal loans during the coronavirus pandemic, you can breathe a sigh of relief. An executive order in January extended the pause in payments on federal loans and set interest rates at 0% through September. Private lenders may offer their own special relief programs, or you can refinance your private student loans to save money.

Whether you have federal, private or both types of student loans, consolidating or refinancing them might help you reduce your student debt, better manage payments and work toward other financial goals. Too much student debt can hamper your ability to save for retirement or qualify for other loans, such as a mortgage. This guide explains the differences between refinancing private student loans and consolidating federal student loans, the pros and cons of each, and the best options for different situations.

No student loan refinancer is perfect for every borrower. These lenders are a good starting point for most people, but you should read student loan reviews and research each company on your own.

Refinancing means getting a new (lower) interest rate on an existing loan. Consolidating student loans means combining multiple loans into one monthly payment. Federal loans can only be consolidated. Private loans can be consolidated and refinanced together.

You can consolidate loans through the U.S. Department of Education. The consolidation will give you one monthly payment with a new loan term and fixed interest rate that is the weighted average of your previous rates.

When you refinance student loans, a private lender repays your loans and issues a new loan based on your creditworthiness. If you can qualify for a better interest rate, you could save money and get lower monthly payments when you refinance student loans.

Refinancing terms for your new private student loan are based on many factors, including your annual income, debt, employment and credit.

You can refinance federal student loans through private lenders, but it’s not always a good idea. That’s because you’ll lose access to flexible repayment options, including federal income-based repayment plans and student loan forgiveness programs.

Consolidating your federal loans neither changes the interest that accrues on them nor your ability to get more federal student loans. Consolidating your federal student loans requires no hard credit check and could offer you access to more flexible repayment options or forgiveness programs.

Rather than consolidate your loans, you could consider changing repayment plans to extend your loan terms and get lower monthly payments. But this also won’t reduce the cost of borrowing.

Many borrowers don’t regret their student loans and haven’t explored refinancing them for savings, according to a U.S. News survey of consumers with federal or private student loans. They revealed how much they borrowed, whether their payments are affordable and other details about how their student loans have affected their lives.

Among the survey’s key findings:

Most student loan borrowers surveyed took out less than $50,000 in loans.

A little more than half of survey respondents said their monthly student loan payments are affordable.

Student debt can get in the way of personal goals.

Only about half of respondents have used hardship options, such as deferment or forbearance.

Most student loan borrowers aren’t consolidating or refinancing student loan debt.

More than half of student loan borrowers didn’t research lenders.

Student loan borrowers tried financial aid alternatives before taking out private student loans.

Survey respondents are somewhat split on whether they regret taking out student loans.

Respondents said interest rate was the most important factor when choosing a loan.

Before you proceed with consolidating or refinancing, check that your loans are eligible and make sure your choice is the right fit.

Eligibility can vary by lender, but many private student loan refinancing companies look at these factors:

Also, lenders may require you to meet other conditions for refinancing student loans. If you can’t qualify on your own, some lenders might approve you with a creditworthy co-signer.

Lenders could restrict refinancing to those who:

How soon can you refinance student loans? You’re not likely to get approved for refinancing while still in school, unless you have income. Once you graduate and find a job, you should be able to refinance.

Parents can refinance student loans, too. Parent PLUS refinancing is available with private lenders. When you refinance Parent PLUS loans or private parent loans, you could lower your interest rate, transfer the debt to your child or both.

Kantrowitz says, “You don’t lose as many benefits when refinancing a federal Parent PLUS loan into a private loan since parent borrowers are not eligible for income-driven repayment plans and Public Service Loan Forgiveness.”

Use this chart to compare consolidating federal student loans with refinancing private student loans.

Consolidation does nothing for your interest rate, but it does make your loans easier to manage, says Travis Hornsby, founder of Student Loan Planner, a consulting firm that helps borrowers manage student loans.

Consolidation could make sense if:

On the other hand, choose refinancing “if you’re trying to reduce your interest rate and you need to pay off your balance in full,” Hornsby says. Refinancing your student loans with a private lender could be a good idea, as long as:

Congratulations! You just graduated and were hired for your first job earning $65,000 a year in San Francisco.

You have three federal direct subsidized loans: one for $10,000, one for $6,000 and the other for $5,000. To pay down your student debt under the standard repayment plan, you will spend 10 years and roughly $24,000, including interest.

Here’s how this scenario could change by either consolidating your federal loans or refinancing them with a private lender.

Be sure to compare the monthly payment with the total cost when you are considering consolidating or refinancing student loans, Kantrowitz says. Your monthly payment could be lower – sometimes much lower – but you could pay thousands of dollars more in interest.

Of course, you’ll want to compare more than just your monthly payment and interest rate to determine whether consolidating or refinancing your student loans might make sense.

You can select the right loan refinance company for your needs by reviewing eligibility requirements and these key factors:

Low interest rates are key. When you compare student loan refinance companies, look for competitive interest rates so you can pay the lowest annual percentage rate possible. You can choose between fixed rates and variable rates, depending on the lender.

Student loan companies usually advertise interest rate ranges on their websites, so that’s a good place to start. Some lenders offer a rate check option. This allows you to prequalify or see estimated loan refinance rates and terms using a soft credit check, which won’t hurt your credit. It’s a good idea to check rate options before you formally apply.

Make sure a student loan refinancing company offers terms that meet your needs. Compare loan amounts and repayment terms to determine a good fit.

If you need flexible repayment or want hardship options available in case of emergency, find out what lenders offer. Some lenders may have flexible repayment options, perhaps allowing you to make interest-only payments for a certain period of time. Deferment, forbearance and other hardship options may be available, too.

Interest rate isn’t the only cost you’ll face. Refinanced student loans may come with origination, late or returned payment fees.

Learn about how well a student loan refinancing company does with customer service by reading student loan reviews. You’ll want to know what experts and other consumers have to say about a loan refinance lender before you sign on the dotted line.

Overall, interest rate and ease of refinancing are the most important considerations when refinancing, Hornsby says, and that can guide your decision-making. Also, take a look at how generous the forbearance terms are and which servicer the company uses.

“That said, student loan refinancing is really a commodity,” Hornsby says. “You’re looking for the lowest interest rate with the least amount of pain in the application process. Luckily, that process is generally pretty fast and easy.”