A Guide to Private Student Loan Refinancing

There are two different types of student loans; federal and private. Federal loans, like the Stafford Loan and the Perkins Loan, are backed by the federal government. Interest rates on federal student loans are determined by a weighted average and capped at 8.25%. Private student loan consolidation rates on the other hand, are determined by your credit score and can be significantly higher. If you've got both federal and private student loans and are looking to consolidate, there are few things that you'll need to keep in mind throughout the process.

Can private student loans be consolidated with federal student loans?
No. By combining federal and private student loans, you would lose out on many of the benefits of your federal loans including the ability to place your loan into a deferment or forbearance status, as well as the low federal interest rates.

What interest rate can I expect when I consolidate private student loans?
Private student loan interest rates aren’t regulated like those for federal student loan consolidation. Instead, private student loan interest rates are based on an index plus a percentage determined by your credit score. It may be possible to obtain a lower rate on a private consolidation loan with a cosigner or guarantor on the loan.

What other options are available for consolidating private student loans?
There are far fewer options for consolidating private student loans than with federal student loan consolidation. Many borrowers choose to consolidate their private student loans through a home equity refinance. For borrowers with variable interest rate private student loans, consolidation through a home equity loan can offer a fixed percentage rate and extended repayment terms.

Refinance federal student loans first
Because private student loans don’t have the same consolidation benefits, most experts strongly recommend refinancing federal student loans before attempting to consolidate private loans. Since most borrowers use federal student loans to fund the majority of their education and obtain private loans only to fill in the gaps, refinancing federal loans now may give you the relief you need.

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