All About Refi

Student loans. You know you’ve got payments to make — but you didn’t realize they’d eat up your entire paycheck. Or that the interest rate would be so high.

People keep telling you to “consolidate” or “refinance” but what does that really mean? Good question!

What is Federal Loan consolidation?
If all your loans are federal loans, you have the option of “consolidating” them into a single loan. The interest rate you pay on your combined loan is the weighted average of the interest rates on your existing federal loans.

What about refinancing?
A refinance involves applying for a new loan from a private lender to pay off all your old loans. The interest rate you pay has nothing to do with your existing loans.

What’s the difference?
You can’t consolidate federal and private loans — but you can refinance both. Even if you’ve already consolidated your federal loans, you can still refinance with most companies.

When is refinancing a bad idea?

  • When your repayments are almost done. Most companies won’t let you refinance if you don’t have at least a certain amount in student loans. If you’re under that minimum amount, you might want to just keep moving forward as you are – you’re almost there!
  • When you missed a couple payments—or more. Things happen, and life gets in the way. If you missed a loan payment, lenders can be picky about your eligibility. If you’re consistently missing payments and need a solution, contact your lender to talk through options.
  • When you qualify for loan forgiveness. If you work for the government or certain non-profits and plan to stick to that for at least 10 years, your federal loans could be forgiven. Teachers have a version of this forgiveness as well. You can learn more by visiting the Federal Student Aid site.
  • When you want to take advantage of repayment programs based on income. With your federal student loans, you have a number of repayment plan options based on your income. You’ll forfeit these options if you refinance your federal loans.

Good Reasons To Refinance:

  • You have a killer credit score. You’ve been diligent about paying off your credit card every month. Most refinancing companies determine your rate using your credit score (though this isn’t true for all companies), so the higher your credit score, the lower your rate.
  • You’ve made all your loan payments on time – and maybe even overpaid some months (you overachiever, you!). That means your loans are in “good standing,” which is key for refinancing. Keep up the good work.
  • You want to lower the interest rate on your loan(s). You’ve got a rate you aren’t thrilled about. Lowering your rate even a little bit can help you pay off your loan faster or lower your monthly payments and free up some discretionary income!
  • You want to simplify your payments. If you have multiple loans, federal or private, refinancing means combining all of these into one payment with one interest rate. This could mean fewer headaches for you.

A big shout out to brightpeak financial for letting us riff on their blog content. Thanks, guys.

brightpeak financial and cuLearn are divisions of Thrivent Financial for Lutherans, a membership organization of Christians founded more than a century ago, which is based in Appleton, WI 54919-0001.

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