Can You Refinance Your Federal Student Loan with a Private Student Loan?

You have many options to refinance your federal student loan, but doing so with a private loan is not always one of them. The federal government will offer many advantages to borrowers who qualify under their standards. They will not offer a great deal of flexibility, though, making it harder to modify and negotiate the debt in the future. Further, the rate you are getting on your federal loan is likely better than any you will get on the private market. If you want to refinance your federal student loan, consider the following options.

Federal Loan Consolidation

The government does encourage the consolidation of many student loans into one lump sum where possible. Students may consolidate loans over multiple semesters or loans from undergraduate and graduate school into one debt agreement. Parents may do the same if they have taken out loans, like PLUS loans, for more than one of their children. You may not consolidate a loan while you are still in school for the most part. It is also very hard to consolidate a loan that has gone into default; in some cases, it will be impossible. If you are having difficulty meeting your loan obligation, then you should seek the consolidation step as soon as possible to avoid any future issues.

Federal Loan Deferment

The government will offer loan deferment to most students having difficulty making payments. The government is not as concerned with profiting off your loan as it is in simply receiving the funds back in full. This means they will make as many concessions as is prudent to keep your loan in good standing. In order to be eligible for a deferment, you must have a financial circumstance preventing you from repaying the loan. Simply mismanaging your money is not good enough. You should be able to show you have made an attempt at making loan payments but can no longer do so at your current income and expenses. The deferment will only be for a short time, and interest may still accrue in some cases even though payments are not called in.

Federal Loan Refinancing

Some federal loans allow for federal refinancing. If the national prime interest rate has dropped in the time since you took your loan out, you may ask for a refinance. Most federal loans are given based on the current prime interest rate, meaning you will have a good case for the change. If the economy, especially the job market, has dropped significantly since you took the loan, the federal lender will likely be willing to offer you options to reduce your interest rate or monthly payments. 

Private Loan Options

When you contract with the federal government, there may be a provision in your agreement that prevents you from taking on other debt until the loan is at least partially paid off. This means you will not simply be able to take out a refinancing loan from another lender. Even if you can do so, private loan interest rates are typically well above the rates offered on federal loans. Not only is it not possible in most cases, it is typically not a good idea.



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