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Updated on Friday, August 2, 2019
If you’re wondering whether you can consolidate student loans while in school, congratulations: By already asking great questions about your upcoming debt repayment, you’re at the top of your class.
Unfortunately, you might be too fast for your own good.
It’s difficult — albeit not impossible — to consolidate or refinance student loans while still in school. But that said, it’s still worth reviewing your options to adjust your repayment before you leave campus.
Can you consolidate student loans while in school?
To brush up on the basics, remember that student loan consolidation occurs when you group your debt into a new, single loan with a weighted, average interest rate. You could accomplish this via a federal direct consolidation loan.
To be eligible for federal loan consolidation, you must either be enjoying your six-month grace period or already be in repayment — in other words, off campus and into the real world.
Refinancing takes consolidation a step further. It, too, groups your loans into one new loan, but it also could lower your interest rate. By reducing your rate, you’d pay less interest over the life of your loan, potentially saving you significant money when kept at the same term.
Say you borrowed $20,000 on a 10-year term and with an average rate of 7%. By refinancing that amount at 5% and for the same 10-year term, for example, you’d shave off $2,410 in interest over the life of the loan.
Refinancing could also allow you to choose a new lender, but note that only private lenders offer refinancing. This means you’ll lose exclusive protections on your federal debt since only federal loans feature access to income-driven repayment plans, flexible deferment and forbearance options, as well as pathways to loan forgiveness.
For this reason, if you decide you want to refinance federal student loans rather than consolidate them, make sure the benefits outweigh the drawbacks for your particular situation. And if you do go ahead with it, try to shop around for a good refinancing rate.
Can you refinance student loans while still in school?
Unlike with federal loans, private lenders employ underwriting criteria to gauge your ability to repay your new, refinanced loan (along with your other debt, if you have any). You typically need to have a strong credit score and proof of a steady income — or a cosigner who has both.
Unfortunately, being a college graduate is also among most lenders’ requirements. Generally, lenders require that refinancing borrowers have graduated from a Title IV school. An associate degree is sometimes acceptable.
But if you don’t have a degree (yet), consider these two lenders:
- Earnest: If you’re within one semester of graduating, you could apply and be approved for refinancing a little ahead of schedule. You could also qualify if you’re a part-time student, enrolled less than “half-time.”
- Citizens Bank: If you take a break from school and make 12 on-time payments toward your loans, you could refinance them without having earned a degree.
- SunTrust Bank: If you only need to refinance private student loans, not federal ones, then SunTrust has an option too, so long as you loans are current.
Grad students eligible for refinancing
If you’re seeking a second degree, meanwhile, you might be looking to refinance your undergraduate loans.
In this case, your undergraduate degree will likely qualify you to refinance with most lenders. Keep in mind that both your current lender and your potential refinancing lender will typically allow you to defer your loan repayment once you re-enroll.
On the other hand, you might want to delay refinancing until you earn a second degree and perhaps establish a longer credit history or steady income stream. This way, you’d score a lower interest rate.
Parents could refinance PLUS loans
If your parent is looking to refinance federal PLUS loans, they won’t have to wait until you’re done with school to refinance. That’s because Mom or Dad is listed as the primary borrower.
PLUS loans are prime targets for refinancing because they’re tagged with relatively high interest rates. As of October 2018, parent PLUS loans carried a 7.60% fixed interest rate, plus a 4.25% loan origination fee.
Before your parent seeks a lower rate from a refinancing company, however, it might be worth reminding them about what they’d be giving up. Just as with private student loans, privately refinanced parent loans don’t always feature government-like protections such as deferment and forbearance options.
Perhaps you and your parent had a handshake deal that you’d eventually handle the repayment for the PLUS loan. In this case, they could refinance the loan under your name — but you’d have to finish school first.
Making in-school payments is the next best thing
If your goal of refinancing was to lower your interest rate, you’d likely have to wait until you’re a college grad.
With that said, there are measures you can take now to save money later.
Whether you have federal or private loans, making in-school payments can stop your balance from ballooning while you’re in the classroom.
For federal loans, contact your servicer to learn about how to make in-school payments. Although subsidized direct loans won’t accrue interest until you’re six months out of school, other federal loans will, so it’s wise to begin repayment ahead of schedule if you can afford it.
With a private lender, your in-school repayment options were (hopefully) presented at the time you decided to borrow. Lenders offer a mix of choices, including:
- Deferring payment until graduation, allowing interest to pile up
- Making small fixed payments to save some money on interest while you’re enrolled
- Making interest-only payments to keep your balance from growing at all
- Making full payments to attack your debt from the start
Of course, the more money you put toward your loan balance while you’re in school, the less you’ll have to pay when you graduate.
Laying the groundwork now to refinance later
If you begin making in-school payments, you’re not just saving money. You’re also building up your credit score.
In fact, 35% of your FICO score, one of the most commonly cited credit scores, is based on your debt payment history. If you start repaying your loans while you’re in school (and repay credit card debt on time), you’re starting to build that history.
That takes care of one of refinance companies’ underwriting criteria. However, there are more ways to put yourself in a position to refinance not long after receiving your degree.
Maybe you don’t have the bandwidth for a full-time job while in college, but scoring a part-time position or internship now could lead to a good-paying gig later.
Eventually, having that consistent paycheck will not only help you repay your loans, but also prove to refinance companies that you have the income to cover your newly consolidated debt.
That’s the silver lining of it all. Yes, you might not be eligible to refinance student loans while still in school, but you can begin strengthening your application for the future.