Can Student Loans Be Refinanced?

Q: Is it possible to refinance student loans?

A: Student loans cannot be refinanced in the same way as a mortgage, because student loans are not backed by a physical asset (like a home). However, if you want to lower your monthly student loan payments, you do have other options.

After college, many former students quickly find out that the monthly payments related to their student loans are higher than they can comfortably afford.

When this is the case, you have many options. In some cases, student loan payments can be temporarily stopped with a deferment or forbearance. Also, federal student loans come with a host of repayment options, including an option to make smaller payments for a period of time.

If of these options sound right for you, contact the company that is servicing your student loans (i.e., the company that sends your monthly bill).

Another very popular option is student loan consolidation. Consolidation allows you to combine your student loans into one new loan with lower monthly payments. The monthly payments are lower because the length of repayment is longer. Instead of having 10 year to repay your student loan, you might have up to 30 years. So keep in mind that those smaller monthly payments can come with a price. The longer repayment term often means that you will pay more interest over time.

If you have federal student loans, they can be combined with a Federal Consolidation Loan. You may be asking yourself, what about private loans? Can private loans be consolidated?

The answer is maybe. Be aware that your private student loans cannot be consolidated with your federal student loans. However, there are companies that offer private loan consolidation.

Just like the Federal Consolidation Loan, a private consolidation loan can combine your private loans into a single loan with a lower monthly payment. But private consolidation is different because you will have to qualify for the loan. This means passing a credit check as part of the application process. The quality of your credit standing will be used, in part, to determine the interest rate of your new combined loan.

So that leads us to the question, should you consolidate your private student loans?

As we mentioned, lowering your monthly payments will increase the number of total payments you will have to make. By extending your repayment term you will have additional time to payoff your loans. This can mean paying more money over time. So if you consolidate, look for a lender that offers no prepayment penalties. This will allow you to pay the consolidation loan off more quickly if you choose.

Also, use a consolidation calculator to see what your new combined interest rate will be. Do not agree to consolidate your private student loans without having a clear understanding of what your interest rates are now, and what it will be after consolidation.

If you choose to consolidate, you will be asked to provide Social Security number, personal references, as well as information regarding your monthly income and expenses. If you apply with a co-borrower, they will also need to provide this information.

Then, for every loan you wish to consolidate, you will be asked to provide the account number, the loan balance, the payoff amount, as well as the name and contact information of the holder of the loan.

So before you consolidate your private student loans, do your homework, shop around, and understand the pros and cons of consolidating.

Learn more at wellsfargo.com/student/private-loan-consolidation