It’s not uncommon to graduate college owing on multiple student loans. Each year students fill out the FAFSA® (Free Application for Federal Student Aid) and each year a new financial aid award letter is generated, which most likely results in another student loan to cover the entire cost of schooling that academic year.
For students with multiple loans, consolidation can help simplify the repayment process. Consolidating multiple student loan payments and potentially multiple monthly due dates will surely make repayment easier. However, the term consolidation shouldn’t be misunderstood as it has a unique meaning for federal student loans vs private student loans.
Federal Student Loan Consolidation
A Direct Consolidation Loan from the U.S. Department of Education is the compiling of multiple federal student loans into one single loan. This alleviates having to deal with potentially several loan servicers, each with their own payment schedules and simplifies your payment into one payment to one servicer each month. Additionally, a Direct Consolidation can extend the length of the loan up to as many as 30-years, which could lower monthly payments but ultimately cost more in interest overall.
Important to note – when federal loans are moved into a Direct Consolidation Loan the interest rate associated with each individual loan doesn’t change. The new consolidated loan will have a weighted average fixed-rate interest rate based on the loans being consolidated and will be rounded up to the nearest 1/8th of one percent.
How to Apply for a Direct Consolidation Loan
Anyone with eligible federal student loans who has either graduated or has fallen below half-time attendance can apply to consolidate their loans. You cannot consolidate student loans that have yet to enter repayment , if you are in a grace period, it’s recommended to wait to consolidate, as you will lose the remainder of your grace period once the loan is processed, and you immediately begin repayment.
You can apply for a Direct Consolidation Loan by submitting your consolidation loan application either online or by mail—however, it is recommended that you complete your consolidate application online when possible. After submission, it’s important to continue making payments on your existing loans until the process is complete and you have a new consolidation loan servicer with a new payment and monthly due date. Don’t worry if you make an extra payment, your previous loan servicer will either send it to your new servicer as a credit, or refund the payment to you.
Things to Consider Regarding Direct Consolidation Loans
When you consolidate multiple loans it’s important to know that any outstanding interest on your existing loans will become part of the principal balance of your new loan, potentially making your new Direct Consolidation Loan outstanding principal greater than the sum of the outstanding principal individual loan amounts on your existing federal loans. That’s because your servicer(s) managing your student loan accounts will typically hold accrued interest in a separate “bucket” unless they are required to capitalize that interest—which means, add it to your outstanding principal balance. Your servicers are required to capitalized interest before transferring your loan to your new Direct Consolidation Loan.
It’s also possible that you might forfeit some benefits when consolidating your federal loans into a Direct Consolidation Loan, such as interest rate discounts or cancellation benefits. For example, if you are consolidating a Federal Perkins Loan into a Direct Consolidation Loan, your Federal Perkins Loan will lose its subsidy Meaning, if you ever put your Direct Consolidation Loan in a deferment status, your previous Perkins balance will be considered unsubsidized loan funds and will accrue interest, or the Perkins loan cancellation benefit.
Private Student Loan Bundling and Refinance
You also have the option of bundling several private student loans together or even multiple federal and private student loans together. While some might call this bundling a ‘consolidation” the terms and implications are quite different for you the borrower.
Technically, this bundling of loans would be considered refinancing your student loan(s). In doing so, you have the potential of lowering your interest rate (not available with the Direct Consolidation Loan) as well as changing the repayment options and length of repayment. This may seem like an obvious choice, if you can lower your interest rate, but there are other financial implications of leaving the federal student loan program that should be considered before making the decision to do so.
Benefits of Student Loan Refinance
The biggest and most compelling reason to refinance your student loan(s) is to take advantage of lower interest rates than those you committed to when first accepting the loan. Lower rates could mean lower monthly payments, less money paid in interest overall and potentially paying off the loan sooner, should you opt to continue paying your same monthly payment with more money now going toward the principal bringing it down faster.
Another benefit of private student loan refinance is changing your loan terms. You could shorten or lengthen the loan repayment term of your loan to best suit your needs and ability to pay. Should you choose to lengthen the loan, keep in mind that more payments will mean more interest paid overall. However, if your current situation requires you to lower your payment by extending the repayment term, you could always increase your payments later (if finances allow) to put you back on track to pay it off sooner. Many student loans, even a private student loan refinance, should not have prepayment penalties—but check your terms and conditions to make sure!
Finally, if your parents or some other person cosigned to help you get a loan while you were in school, refinancing is one way to remove the cosigner from the commitment. If you can show you are a credit-worthy borrower capable of making the payments on your own, you can refinance the loan in your name alone. You can take this opportunity to go out on your own to help continue build your credit score and establish a strong credit history, that will help you further down the road should you decide to buy a car or home or other major purchase.
Don’t fret if you are unable to qualify on your own, you can ask another individual (like a spouse or sibling) to cosign your new private student loan refinance.
Considerations if Refinancing Federal Student Loans
If all or some of your loans are federal student loans, you will want to carefully weigh the pros and cons before choosing to take your loans out of the federal student loan programs. Federal student loans offer a variety of programs to help struggling students that private loans may not. For example, there are income-driven repayment plans and forgiveness plans offered for federal student loan borrowers that would otherwise be forfeited should you move your federal loans into a private student loan.
Ultimately you need to decide if the lower interest rate is worth more to you than the repayment options offered for federal borrowers. However, should you decide that saving money is more important and are willing to forego the federal benefits, there are several private lenders out there who will compete for your business, so make sure to do your research and compare each lender carefully before deciding on one.
Best Student Loan Refinance Lenders
SoFi Student Loans
- Rates as low as 1.74% variable and 3.49% fixed1
- No fees or prepayment penalties
- Unemployment protection
1Fixed rates range from 3.49% APR to 7.99% APR with a 0.25% autopay discount. Variable rates from 1.74% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.
College Ave Student Loans
- Variable rate range: 3.44% – 6.64% APR1
- Fixed rate range: 3.49% – 6.74% APR1
- No application or prepayment fees
- Apply in 3 minutes or less for instant credit decision
College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2This informational repayment example uses typical loan terms for a refi borrower who selects the Full Principal & Interest Repayment Option with a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $250,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
Information advertised valid as of 4/12/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.
Splash Financial Refinance Loan
- Rates as low as 1.74%1 Variable APR and 1.99%1 Fixed APR
- No pre-payment penalties, origination, or application fees
- See rates in 3 minutes without affecting your credit score2
1The rates displayed may include a 0.25% autopay discount.
2To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Earnest Student Loan Refinancing
- Variable rates starting at 1.74% APR (including 0.25% Auto Pay discount)*
- Fixed rates starting at 2.74% APR (including 0.25% Auto Pay discount)*
- Choose your own monthly payment
- No fees of any kind and exceptional customer service for the life of your loan
- Check your rate in under 2 minutes
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 2.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.
*Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. Not all borrowers will qualify for our lowest rates, and your rate will be based on creditworthiness at time of application.
The information provided on this page is updated as of 4/29/2022. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
You Put in the Work. Now Reap the Rewards.
- Variable Rates between 1.87% - 6.52% APR1
- Fixed Rates between 2.30% - 5.96% APR1
- No application or prepayment fees
- Cosigner release with 24 consecutive on-time payments2
1Interest Rates
Fixed interest rates range from 2.30% APR (with auto debit discount) to 5.96% APR (without auto debit discount). Your interest rate will depend on your (and if applicable, your cosigner’s) credit qualifications. The fixed interest rate will remain the same for the life of the loan.
Variable interest rates range from 1.87% APR (with auto debit discount) to 6.52% APR (without auto debit discount). Your interest rate will depend on your (and if applicable, your cosigner’s) credit qualifications. Variable rates may increase after consummation. Variable rates for Nelnet Bank Refinance Loans are calculated as the One-Month SOFR plus the applicable Margin percentage. Variable rates will be based on the highest One-Month SOFR as published by the Federal Reserve Bank of New York and/or the Wall Street Journal “Money Rates” table on the twenty-fifth day (or the next business day) of the immediately preceding calendar month. The variable rate may change on the first day of each month if the SOFR index changes. This may result in higher monthly payments. The current One-Month SOFR index is 0.05% as of January 1, 2022.
Auto Debit Interest rate reduction of .25% for automatically withdrawn payments from any designated bank account (“auto debit discount”). Auto debit discount applies when full payments (including both principal and interest) are automatically drafted from a bank account. The auto debit discount will continue to apply during periods of approved forbearance or deferment if the auto debit discount was in effect at the time of receiving the forbearance or deferment. Auto debit discount will remain on the account unless (1) the automatic deduction of payments is canceled or (2) there are three consecutive automatic deductions returned for insufficient funds at any time during the term of the loan.
The lowest rate for each loan type requires automatically withdrawn (“auto debit”) payment. The lowest rate is available only to the most creditworthy applicants. Not all borrowers will receive the lowest rate. The interest rate and Annual Percentage Rate (APR) may be higher depending upon (1) the credit history of the borrower and, if applicable, the cosigner, (2) the repayment option and loan term selected, (3) the loan type selected, and (4) the highest level of education attained. If approved, applicants will be notified of the rate qualified for within the stated range.
2Cosigner Release. A request for the cosigner to be released can be made by either the borrower or cosigner when each of the following conditions has been met:
- The account must have been in full principal and interest repayment for at least 24 months.
- Twenty-four consecutive, on-time principal and interest payments, or lump sum equivalent, must have been made. NOTE: A lump sum payment does not replace the requirement to have been in full principal and interest repayment for at least 24 months. Interest-only or fixed-pay payments while enrolled in school do not qualify towards the 24 consecutive on-time payments.
- The loan must be current at the time of request.
- The loan must not have been in deferment, hardship forbearance, or other alternative payment assistance plan within the past 24 months.
- The loan must not have been permanently modified from its original terms in the credit agreement.
- The primary borrower must be a U.S. citizen or have permanent residency in the United States.
- The primary borrower must meet the age of majority requirement in their permanent state of residency.
Requirements are subject to change. If all of these conditions have been met, then an application for cosigner release may be submitted. The primary borrower is required to demonstrate they have the ability to assume sole responsibility for the loan(s) by providing proof of income, meeting debt-to-income requirements, and having a satisfactory credit history. (A credit report will be obtained during the review process).
3Refinance Loan Eligibility: You must be a U.S. citizen or permanent resident alien with a valid U.S. Social Security number, and be the legal age to enter into binding contracts in your state/territory of residency, or be at least 17 years of age and apply with a cosigner who is at least the age of majority in their state/territory. Non-residents can apply with an eligible cosigner who is a U.S. citizen or permanent resident alien with a valid U.S. Social Security number. The student loans you refinance must be in their grace or repayment period, and you can no longer be enrolled in school on a half-time or more basis. You must have at least $5,000 in student loans to refinance. You, or your eligible cosigner, must have an annual income of at least $36,000. Approval subject to credit review. Other credit criteria may apply.
Refinance Loan Limits:
Minimum loan amount: $5,000
Maximum student loan limits:
$125,000 for borrowers with an undergraduate degree.
$175,000 for borrowers with a graduate, MBA, or law degree.
$500,000 for borrowers with a graduate health professional degree.
Nelnet Bank, and any associated logos or design marks, are trademarks or service marks of Nelnet, Inc. All loan programs and terms are subject to change or may be discontinued at any time without notice. Certain restrictions and limitations may apply.