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Student Loan Consolidation vs. Student Loan Refinancing

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Student Loan Consolidation vs. Student Loan Refinancing

I haven’t met a single person with student loans who doesn’t want them gone as soon as possible. It’s hard enough to start a career or raise a family, and when a large chunk of your income is going toward student loans every month, it can feel downright impossible.

To help ease the burden of student loan payments, many borrowers opt to consolidate or refinance their student loans. Both options have the potential to help you pay your student loans off quicker and pay less interest along the way, but there’s a lot of confusion around how they work, how they differ, and whether they’re right for you.

By the end of this post you will understand both options and have a good idea whether one, or both, are right for you.

The terms student loan consolidation and student loan refinancing are often used interchangeably, but they actually mean two very different things, and they have very different sets of pros and cons. Lenders often add to the confusion by using the term consolidation when they’re actually talking about refinancing.

So before we dive into the specifics of each option, let’s first clear up what they are.

Student Loan Consolidation: The Basics

Student loan consolidation refers specifically to the federal student loan consolidation program, a process through which you can combine one or more federal student loans into a single Direct Consolidation Loan. You cannot use this program with private student loans. Refinancing, on the other hand, is done by private lenders. Unless you’re dealing directly with the U.S. Department of Education, you’re talking about refinancing, not consolidation.

We’ll get into the details below, but the primary reason to consolidate your federal student loans is to qualify for beneficial income-driven repayment plans you wouldn’t otherwise be eligible for. And the major downside is simply that consolidating won’t get you a lower interest rate, which is often a big point of confusion.

The Benefits of Student Loan Consolidation

Given that consolidation won’t improve your interest rate, why should you consider consolidating your federal student loans? How can it benefit you?

Here are three of the biggest reasons to consider consolidating your federal student loans.

1. You can qualify for better income-driven repayment plans

The government offers a number of income-driven repayment plans for federal student loans, and these plans are a real bargain for three main reasons:

  1. Your monthly payment is determined by your income, which means it will decrease during periods where your income is low.
  2. They all offer some kind of forgiveness as long as you make the required payments for a certain number of years.
  3. If you work for a qualifying nonprofit or government organization, these repayment plans qualify you for Public Service Loan Forgiveness, which takes even less time and offers more forgiveness.

The catch is that only Direct federal student loans are eligible for some of these repayment plans. Federal Family Education Loans (FFEL), which were all given out prior to 2010, are only eligible for income-based repayment (IBR), which is certainly good but often not as beneficial as Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).

So, if you would otherwise be eligible for those better repayment plans, you can consolidate your FFEL loans and turn them into Direct Loans, thereby opening up your eligibility. And keep in mind that you can consolidate a single loan all on its own, so you don’t need multiple FFEL loans to take advantage of this.

If you wouldn’t otherwise be eligible for those repayment plans, or if you already only have Direct Loans, then consolidation won’t help you here.

2. You can lock in low, fixed interest rates

Prior to July 1, 2006, most federal student loans were issued with variable interest rates that reset each year. Since then, all federal student loans have been issued with fixed interest rates.

If you have older loans with variable rates, consolidating them now can lock in a relatively low, fixed interest rate.

For example, according to Nelnet, variable rate federal student loans currently have interest rates ranging from 2.05% to 3.80%, depending on the type of loan and year of disbursement. By consolidating and locking in those low rates, you can ensure that your loans won’t get more expensive over time if interest rates rise.

3. You can get your loans out of default

If your federal student loans are in default, which typically means that you have missed payments for 270 days, you can consolidate your loans to get out. This can be an incredibly effective way to avoid the negative consequences of default, such as your loan immediately being due in full, taxes and wages potentially be garnished, and a big hit to your credit report, among others.

The catch is you can typically only use it once in your lifetime. So you should be confident that you won’t default again in the near future before proceeding. Otherwise, you may want to consider alternative ways to get out of default, such as rehabilitation.

The Downsides of Student Loan Consolidation

While all of the above are good reasons to consider consolidating your federal student loans, here are four things to watch out for.

1. You Won’t Get a Better Interest Rate

Consolidating your federal student loans won’t improve your interest rate. In fact, it’s likely that your interest rate will increase by just a tiny bit.

When you consolidate, the interest rate of your new loan is the weighted average of all of the loans included in the consolidation, rounded up to the nearest ? percent. What that means is that at best you’ll end up with the same combined interest rate that you had before, and at worst your interest rate will increase by about 0.125%.

You can use the following calculator to see what your interest rate would be after consolidation: FinAid Loan Consolidation Calculator

FinAid Loan Consolidation Calculator

The bottom line, though, is that student loan consolidation is NOT a route to a better interest rate. You need to refinance if that’s what you’re after, and we’ll talk more about that below.

2. You won’t be able to target your highest interest loans first

If you have two federal student loans with very different interest rates, you can pay them off faster and save yourself money by putting extra payments toward the loan with the higher interest rate first. But if you consolidate those two loans together, you end up with a blended interest rate and lose the ability to pay off the higher-interest loan quicker.

In this type of situation, it can make a lot of sense to consolidate those loans separately. Doing so would preserve the condition of having one high-interest rate loan and one low-interest rate loan, and would therefore allow you to keep prioritizing the high-interest rate loan.

3. You’ll lose any progress you’ve made toward qualifying for loan forgiveness

One of the benefits of enrolling in an income-driven repayment plan is the opportunity to have some of your student loan balance forgiven. Basically, with each plan you have to both be enrolled in the plan and make your minimum payment for a certain number of years. If you still have a balance at that point, it will be forgiven.

Here’s a quick overview of how long it takes to earn forgiveness with each repayment plan:

  • Income-Based Repayment = 20-25 years
  • Pay As You Earn = 20 years
  • Revised Pay As You Earn = 20-25 years
  • Public Service Loan Forgiveness = 10 years

Keep in mind that Public Service Loan Forgiveness is the only program that offers tax-free forgiveness. In all other cases, the amount of money forgiven would be considered taxable income.

If you’re already enrolled in an income-driven repayment plan and have made progress toward forgiveness, consolidating your loan means you’re likely starting over from scratch.

Depending on how much progress you’ve already made, and whether you could qualify for quicker forgiveness after consolidating, this might be a reason to avoid it.

4. Watch out for Parent PLUS loans!

Parent PLUS loans are federal student loans taken out by parents, and they are not eligible for the most generous income-driven repayment plans, even after consolidation.

What that means is that you need to be very careful NOT to mix Parent PLUS loans with other loans when consolidating. You should always consolidate them separately, if at all, to make sure that your other federal student loans remain eligible for the best income-driven repayment plans.

When Student Loan Consolidation Makes Sense

In general, federal student loan consolidation can make a lot of sense when you have one or more FFEL loans and your debt-to-income ratio is high, meaning you stand to significantly benefit from one of the more generous income-driven repayment plans.

It may also make sense if you have older, high-interest, variable rate loans and want to lock in a low, fixed interest rate.

Just be careful not to mix high-interest loans with low-interest loans, and not to consolidate Parent PLUS loans with other student loans. And make sure you’re not giving up on significant progress you’ve already made toward forgiveness on your current loans.

How to Consolidate Your Student Loans

If you’d like to consolidate your federal student loans, you can start the process here: Direct Consolidation Loan Application.

Student Loan Refinancing: The Basics

Student loan refinancing refers to the process of taking out a new private student loan to replace one or more existing student loans. You can refinance both federal student loans and private student loans, and there are specific pros and cons to each that we’ll talk about below.

The Benefits of Student Loan Refinancing

1. You can get a lower interest rate

The main reason to consider refinancing your student loans is the opportunity to lower your interest rate. A lower interest rate likely means lower monthly payments, a lower lifetime cost, and a quicker path to being debt-free.

Of course, refinancing doesn’t guarantee a lower interest rate. You still have to go through an approval process, during which the lender will evaluate your financial situation and offer you a loan, or not, based on the information they find. Some people go through this process only to get an offer that’s worse, or at least not much better, than the loans they already have.

The people who are most likely to get a better interest rate than what they have now are people who:

  1. Have high-interest rate student loans, and
  2. Have a credit score that’s significantly higher than when they took out their current loans.

If that’s the situation you’re in, you may benefit significantly from refinancing.

2. You may find a new private loan with better protections than your old private loans

For many years, most private student lenders offered very few protections to their borrowers. For the most part you had to make every payment on time and in full or you were in real trouble.

But that’s started to change. Newer lenders like SoFi and CommonBond have started offering greater protections, such as unemployment protection where your payments are forgiven during periods of unemployment, and disability protection where payments are forgiven during disability.

If you have older private student loans, refinancing may offer greater security. Every lender is different though, so you should carefully read the terms and conditions and compare each offer to see what kinds of protections are available to you.

The Downsides of Student Loan Refinancing

As tempting as it is to grab that lower interest rate, there are some big potential downsides to refinancing your student loans that need to be considered.

Here are four of the biggest.

1. You may lose federal student borrower protections

Refinancing your federal student loans is a big decision that needs to be made very carefully. You’re giving up a lot in the refinancing process, and in some cases you’re better off with the protections offered by federal student loans than you are with a lower interest rate.

Despite some improvements to borrower protections, private student loans still offer significantly fewer protections than federal student loans. Specifically:

  • They are not eligible for income-driven repayment plans
  • They do not offer the opportunity for forgiveness
  • They do not offer deferment
  • Many still do not offer things like unemployment or disability protection

2. Variable rates can be a tease

Some lenders will offer an incredibly low interest rate to entice you to refinance without emphasizing that the rate is variable and that it can change in the future.

If you have the money to pay your loans off quickly, taking advantage of a teaser rate like this can be a good idea. But if it will be a while before your loans are paid off, you should be careful about signing up for a variable interest rate loan that you may not be able to afford several years down the line.

3. Fees could eat away at your potential savings

Some lenders will charge application fees, origination fees, prepayment fees, and all kinds of other fees that can really add to the cost of the loan.

Just keep an eye out for fees when reviewing your refinance options. The more you have to pay, the less attractive that lower interest rate will be.

4. It could take you longer to pay off your loan

In some cases, refinancing will extend your loan repayment period. This may feel like a win given that it lowers your monthly payment, but it can end up costing you more over the long term, even with a lower interest rate.

When Student Loan Refinancing Makes Sense

So, when should you refinance your student loans and when should you take a different route?

In most cases, the answer is pretty simple if you’re talking about refinancing your private student loans. If you can get a better interest rate by refinancing, it will usually make sense to do it. You should always compare all the details of the loans, including the protections they offer and other fees involved. But given that lenders have generally improved their standards over the past few years, it will usually make sense to refinance your private student loans to get a better interest rate.

It’s a lot more complicated if you’re considering refinancing your federal student loans. You shouldn’t give up those protections lightly, especially if your budget is tight and any change in your situation might make it difficult to afford your payments.

Generally, refinancing your federal student loans makes the most sense if you meet all of the following four conditions:

  1. You have high-interest federal student loans
  2. You have excellent credit that will qualify you for the best refinancing deals
  3. You have a high, stable income that makes it unlikely you’ll run into trouble paying off the loan
  4. You don’t qualify for Public Service Loan Forgiveness

If that’s you, then refinancing can be a great move. Qualifying for a lower interest rate could help you pay your loans off sooner, and you have little risk of running into financial trouble.

If that’s not you, you may be better off sticking with your federal student loans, even at a higher interest rate.

Where to Find the Best Student Loan Refinancing Deals

It always makes sense to shop around before making any decision to refinance, just to see what offers are available and how they compare. You can look at interest rates, borrower protections, application fees, and other requirements, and even get pre-approval from certain companies.

MagnifyMoney has a comprehensive page that makes it easy to compare many of the leading lenders and get a sense of what’s available to you.

Here are our top three picks. Each of these lenders has earned an A+ MagnifyMoney transparency score for excellent transparency and ease of use.

SoFi:

  • No origination fee or prepayment fee
  • Fixed interest rates range from 3.49% to 8.07%, and variable interest rates range from 2.43% to 6.59%
  • Flexible repayment terms
  • Strong borrower protections relative to other private lenders

Earnest:

  • No origination fee or prepayment fee
  • Fixed interest rates range from 3.50% to 7.82%
  • Customizable loan terms where you choose the interest rate/length of loan combination
  • Unemployment protection

CommonBond:

  • No origination fee or prepayment fee
  • Fixed interest rates range from 3.69% to 8.07%, and variable interest rates range from 2.46% to 7.08%
  • No maximum loan amount and flexible loan terms

You can also check out your local credit unions, since they are member-owned and often offer loans with favorable terms and conditions.

Consolidation vs. Refinancing: Which One Is Right for You?

Student loan consolidation and student loan refinancing are very different processes with very different pros and cons. Each one can be the right choice, depending on your situation, and in some cases you may want to use both.

In the end, it’s all about your specific loans and the specific goals you’re trying to achieve. Use the information above to weigh pros and cons and make the right decision for yourself.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt here

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College Students and Recent Grads, Student Loan ReFi

Best Private Student Loan Companies in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Taking out private student loans can be a relatively expensive ways to borrow for school, yet many college students make the mistake of turning to private loans too quickly. From 2015 to 2016, more than half (53%) of undergraduates borrowed from private lenders before maximizing their federal loan allotment, according to the Institute for College Access and Success.

On the other hand, federal loans can only go so far, especially if you are pursuing a postgraduate degree that requires more schooling. Once you’ve tapped out your federal aid, a private student loan could help you fill the gap.

While federal loans offer a relatively uniform application process and loan terms, private lenders’ terms can vary widely. If you’re thinking about paying for school with a private student loan, it’s vital to compare lenders’ offerings to find the one that’s best for you.

How we ranked the best private student loans

There’s a lot to review when you’re shopping around with private lenders. Your annual percentage rate (APR), fees and loan repayment term could impact how much you pay in interest over the lifetime of the loan. Other features — such as a straightforward application process and the option to request that a cosigner be removed from the loan — could also affect your repayment.

We started the search for the best private student loan companies by identifying the 10 largest national private lenders. Each lender’s undergraduate student loan was graded on eight critical factors:

  • Private lenders offer loans with varying interest rates depending on the applicant’s creditworthiness — or that of the applicant’s cosigner. Lenders advertise an interest-rate range that you can use to compare one with another.
  • In this case, each lender was assigned grades based on its lowest and highest APRs compared with the average lowest and highest APRs for all 10 lenders. Each lender received four scores (as they all offer variable-rate and fixed-rate loans), and the lenders with below-average APRs received top marks.
  • Lenders could charge application, origination and prepayment fees based on your loan balance.
  • Although fees are becoming a thing of the past, one of these 10 lenders (CommonBond) still charges a federal-like origination fee when the loan is disbursed.
  • All of the top 10 lenders offer an online application, but the clarity and ease of use can vary. The lenders with intuitive processes, plus pre-qualification offers, got the best grades.
  • Many private student lenders, including all 10 of the lenders we compared, offer a 0.25% interest rate discount if you enroll in autopay. A few lenders earned extra points for also extending a 0.25% interest rate discount to borrowers with a related bank account.
  • Most of the private student loans we compared offered several repayment terms with a maximum of 15 or 20 years. Lenders that feature fewer loan-term options didn’t score as well because they offer less flexibility to borrowers.
  • Most undergraduate students qualify for private loans thanks to a creditworthy cosigner, who can also help reduce the interest rate. Some private student loan lenders let you apply to release your cosigner after you make a given number of consecutive, on-time full principal and interest payments and pass a credit check. Setting the bar for a top score of only 12 payments was the shortest option available among the lenders we compared.
  • You may be able to choose from different repayment plans, such as making interest-only payments while you’re in school or fully deferring payments until your post-school grace period ends. Lenders that offer full interest and principal deferment received top marks.
  • A few lenders earned extra credit because they offer unique perks, such as a principal rate reduction or cash back when you graduate.

After assigning each lender a grade, we ranked them and selected the top five for our “Best Private Student Loan Companies” list.

Our top picks for private student loan companies

 

Sallie Mae

CommonBond

College Ave

Citizens Bank

Wells Fargo

Ranking12345
Variable APR4.25% to 11.35%3.74% to 9.72%3.99% to 11.98%3.99% to 11.64%4.80% to 10.72%
Fixed APR5.49% to 11.85%5.45% to 9.74%4.73% to 12.94%4.90% to 12.04%5.49% to 10.93%
Rate discount0.25% for autopay0.25% for autopay0.25% for autopay0.25% for autopay, 0.25% for having a Citizens Bank account 0.25% for autopay, 0.25 to 0.50% for having a Wells Fargo banking or investment account
Origination feeNo Origination FeesYesNo Origination FeesNo Origination FeesNo Origination Fees
Repayment terms5 to 15 years5, 10 or 15 years5, 8, 10 or 15 years5, 10 or 15 years15 years
Cosigner releaseAfter 12 months of timely paymentsAfter 24 months of timely paymentsAfter half your term has elapsed and after 24 months of timely paymentsAfter 36 months of timely paymentsAfter 24 months of timely payments
PerkReceive study support, plus credit score trackingPause your repayment for up to 12 months after leaving school via economic hardship forbearanceReceive $150 bonus upon graduationReceive approval for multiple years of loans at onceN/A

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on Sallie Mae Bank’s secure website

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on CommonBond’s secure website

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on College AVE’s secure website

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on Citizens Bank (RI)’s secure website

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on Wells Fargo Bank’s secure website

*Rates are current as of Jan. 24, 2019, and may include a 0.25% autopay discount.

#1 Sallie MaeSmart Option Student Loan

Sallie Mae offers a wide range of student loans to undergraduate, graduate and professional students, as well as their parents. That may not come as a surprise though, since Sallie Mae is one of the most widely known private student loan companies. It opened its doors in 1972 as a government-sponsored company before privatizing in 2004.

  • Why it’s our top pick:
    • The undergraduate Smart Option Student Loan has a few standout benefits, such as the option to release a cosigner after making 12 consecutive monthly payments.
    • You can also choose from three in-school repayment plans: full deferment, $25 monthly payments or interest-only payments. And if you’re having trouble making payments after graduation, you can also request to make 12 interest-only payments.
    • Borrowers also get non-loan-related perks, such as quarterly access to one of their FICO credit scores, plus four months of academic support from Chegg.
  • Room for improvement:
    • Overall, Sallie Mae serves borrowers a variety of choices and benefits. However, it doesn’t offer as many potential discounts as some of the other top lenders. Still, if you find you qualify for a lower pre-discount rate with Sallie Mae than another lender, Sallie Mae could indeed be a smart option.
  • Fine print to watch out for:
    • Sallie Mae says it offers repayment terms between 5 and 15 years, but your repayment term depends on a variety of factors, including your loan amount. Unlike with other lenders, you can’t independently choose your repayment term.

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on Sallie Mae Bank’s secure website

#2 CommonBond

Founded in 2012, the student loan refinancing and lending firm CommonBond is perhaps the most giving among competitors. For every loan it funds, it pays for the education of a child abroad. That could among a number of factors that push CommonBond over the top when you’re considering where to borrow for college.

  • Why we like it:
    • Aside from its do-good ways, CommonBond also saves money for its borrowers. It offers for the most part, the lowest rates of any lender under consideration, plus the benefits found at most online-only lenders: a straightforward loan application, flexible repayment terms and responsive customer service.
    • Although it’s not the only lender to offer you the ability to pause your payments once you leave school, it’s also worth noting that CommonBond gives its members up to 12 months of forbearance. That could come in handy if you lose your job or fall on hard times once you’re out in the real world.
  • Room for improvement:
    • CommonBond offers low rates, but it also charges a 2% origination fee. Aside from matching Sallie Mae’s 12-month path to cosigner release, eliminating the fee is CommonBond’s biggest bugaboo. If you decide the lender is right for you, ensure you calculate the added cost of this 2% fee, which is a one-time charge based on your loan amount.
  • Fine print to watch out for:
    • Unlike federal student loan options for deferment and forbearance, CommonBond (like other private lenders) isn’t mandated to grant you a pause on your repayment. You would need to prove that your circumstances are dire enough to be considered.

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on CommonBond’s secure website

#3 College Ave

Founded by former Sallie Mae executives, College Ave is another online-only lender looking to disrupt the student loan industry. It lends to undergraduates, graduate students and parents, plus students attending career schools.

  • Why we like it:
    • College Ave is the only lender among the 10 we surveyed that offers four repayment term options (5, 8, 10 and 15 years). Interestingly, the company says 79% of its borrowers choose plans of 10 years or less, keeping additional interest from accruing during the life of repayment.
  • Room for improvement:
    • We penalized College Ave in our rankings for its slow path to cosigner release. If you agree to borrow on a 10-year term with the lender, you won’t be eligible to apply to remove your cosigner until after the five-year mark. All the other lenders we reviewed offer release within 12 to 48 months.
  • Fine print to watch out for:
    • College Ave contends it takes just three minutes to apply for a loan, but that merely determines whether or not you (and/or your cosigner) are eligible. After prequalifying, you could proceed to the more detailed application process.

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on College AVE’s secure website

#4 Citizens Bank

Citizens Bank is a large traditional bank with over 1,100 branches across 11 states. It offers student loans to undergraduates, graduate students and parents, as well as student loan refinancing.

  • Why we like it:
    • You might need to apply for a student loan at the start of each term. With Citizen Bank’s multi-year approval, however, you could choose to borrow additional money for another term without having to fill out a new application.
    • Also, if you or your cosigner have a qualifying bank account or loan from Citizens Bank, you could be eligible for a permanent 0.25% interest rate reduction on your student loan.
  • Room for improvement:
    • The primary drawback is the 36-payment requirement to apply to release a cosigner. Aside from that, Citizens Bank offers competitive rates, a variety of loan terms and interest-rate discounts that are in line or possibly better than many of the other private student loan companies.
  • Fine print to watch out for:
    • To qualify for cosigner release, you must also submit income statements to prove you can handle repayment on your own.

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on Citizens Bank (RI)’s secure website

#5 Wells Fargo

You’ll likely recognize Wells Fargo, as it’s one of the largest banks in the U.S., but you may not have realized that it offers student loans. It has several different programs, with offerings for community college students, undergraduates, graduates and professional school students.

  • Why we like it:
    • Like many other lenders, Wells Fargo offers a 0.25% interest rate discount if you enroll in autopay. Also, you can get a permanent 0.25% to 0.50% interest rate reduction if you or your cosigner have an eligible Wells Fargo student loan, consumer checking account or Portfolio by Wells Fargo relationship.
  • Room for improvement:
    • Put simply: You’re put in a box. You have to choose a 15-year term for your student loan. If you stick to making your required payment amount, you could wind up paying more in interest than if you took out a shorter loan elsewhere.
  • Fine print to watch out for:
    • Be sure that you make your first full payment on time. If it’s late, you’ll need to make 48 consecutive full payments (rather than 24) before you can apply to release a cosigner.

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on Wells Fargo Bank’s secure website

Determine if a private student loan is right for you

Using our rankings, you might be able to identify the private lender that offers you the best overall loan. However, it’s worth taking a step back to consider all your options before committing.

To do this objectively, come up with the list of criteria that matter most to you. They could vary from the eight criteria that we employed above — your list might emphasize a lender’s customer service, for instance.

When you’re comparing lenders with your criteria in mind, be prepared to weigh them as you see fit. You might not have a cosigner and therefore don’t care if a lender offers a fast path to cosigner release. In that case, you might look past top-ranked Sallie Mae — and its industry-best 12-month policy — to prioritize a lender that offers the lowest rates to independent borrowers.

Finally, confirm that you’re eligible to borrow from most private student loans banks, credit unions and online companies. You might find yourself disqualified, for example, if you’re an international student without a U.S. permanent resident cosigner. Lenders also generally require undergraduates to be 18, to attend school at least half-time and to have solid to strong credit — or to apply a cosigner who does.

Alternatives to private student loans

Almost always, federal student loans should be a borrower’s first choice if he or she has to borrow money. In part, this is because federal loans give you access to forgiveness programs, special repayment plans and guaranteed options to defer payments or put your loans in forbearance.

Also, if you haven’t built credit of your own and don’t have a creditworthy cosigner, federal student loans could be your only option. Most don’t have a credit requirement, and the federal loans for graduate or professional students and parents that do have a credit check don’t vary their interest rate based on your credit.

By contrast, even with a creditworthy cosigner, you may wind up with a higher interest rate if you take out a private student loan. Advertised interest rates can climb into the double digits, while 2018-2019 undergrads could access federal direct subsidized and unsubsidized student loans at 5.05%.

However, there may be times when a private student loan makes sense or could be a necessity. For example, undergraduate federal student loans have annual ($5,500 to $12,500) and aggregate (up to $57,500) borrowing limits that may not be enough to cover all your educational expenses.

Even if your unsure about whether you’re going to take out federal or private loans, complete the Free Application for Federal Student Aid (FAFSA) annually. In addition to being a requirement for federal loans and work-study aid, you may need to submit the FAFSA to qualify for some grants and scholarships.

Secure as much gift aid as you can before resorting to loans of any kind. After all, grants and scholarships don’t need to be repaid.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at [email protected]

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Reviews, Student Loan ReFi

3 Best Parent PLUS Loan Refinance Options for 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

mortar board cash

Updated January 29, 2018

Are you a parent still repaying student loans you took out to help your children finance their education? While rising student loan debt totals are concerning for new graduates, Parent PLUS loans can mean similar trouble for older Americans trying to plan for retirement or meet other financial goals.

If you’re in this situation, consider refinancing your Parent PLUS loans to lower your interest rate and make the loan more affordable. Direct PLUS loans have had interest rates ranging from 6% to 8% over the last few years, but some refinance programs have rates as low as 2% to 4%, so there are potentially big savings to be reaped.

Below are three lenders we’ve found to be among the best Parent PLUS refinance programs currently available. We encourage you to check each one out to see which (if any) suit your needs the most, as well as to shop around with multiple lenders. All credit inquiries made within a 30-day period count as one inquiry in the eyes of the credit bureaus, so you don’t have to worry about dinging your credit score.

A Word of Warning on Refinancing

Thankfully, most student loan refinance programs and Parent PLUS refinance programs don’t have fees associated with the loan, so you may not need to worry about paying origination or application fees. However, you should do the math to make sure refinancing is worth the paperwork.

If you extend your repayment term, you’ll have a lower monthly payment, but you’ll pay more interest over the life of the loan. And if you’re trying to retire sooner rather than later, extending your term might not be to your advantage.

Beyond interest rates, you should also be aware that refinancing your federal Direct PLUS loan means giving up federal benefits. Private lenders don’t offer the same repayment plans or forgiveness programs, though some lenders are more flexible about repayment than others.

For example, you’ll no longer have access to the graduated,extended repayment or income-driven repayment plans. Private loans also aren’t eligible for Public Service Loan Forgiveness, and you won’t have access to federal forbearance or deferment, though some private lenders allow you to temporarily pause payments if you run into financial hardship.

If you haven’t been struggling with paying back your PLUS loans, then losing these benefits might not concern you, but it’s a factor to consider. And if you refinance your Parent PLUS loans and later run into financial hardship, make sure to speak with your new lender about any arrangements that can be made.

SoFi Parent PLUS Refinance Program

SoFi is one of the leaders in the student loan refinance industry, and it offers refinancing specifically for Parent PLUS loans.

  • Offers refinancing for a minimum of $5,000 up to the cost of attendance for your child’s school
  • Fixed APRs ranging from 3.49% – 7.62% (with autopay)
  • Variable APRs ranging from 2.43% – 6.59% (with autopay)
  • No application or origination fees, and no prepayment penalties
  • Soft credit inquiry with pre-approval; hard inquiry once you apply for the loan
  • Good credit required, but SoFi also takes employment and credit history into account
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Laurel Road Bank (formerly known as DRB) Parent PLUS Refinance Program

Laurel Road Bank also offers a Parent PLUS refinance program with low interest rates.

  • A minimum of $5,000 required to refinance, with no maximum amount
  • Fixed rates: 3.50% – 7.02% (with autopay)
  • Variable rates: 2.43% – 6.65% (with autopay)
  • Terms of 5, 7, 10, 15, and 20 years available, though borrowers can request a specific term under 20 years
  • Also offers hybrid loans (mix of fixed and variable rates), but you must inquire about it
  • Child needs to have graduated college and be professionally employed
  • No origination fee or prepayment penalty
  • Available in all 50 states
  • Soft credit check first, and then hard inquiry when you apply for the loan
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CommonBond Parent PLUS Refinance Program

CommonBond is dedicated to making the refinance process as simple as possible for student loan refinancing borrowers.

  • Maximum amount offered for refinance is $500,000
  • Fixed APRs ranging from 3.67% to 7.25% (with autopay)
  • Variable APRs from 2.50% to 7.24% (with autopay)
  • Hybrid APRs (5 years at fixed, then 5 years at variable) also offered
  • No application or origination fees, and no prepayment penalties
  • 5-, 7-, 10-, 15- and 20-year terms available (hybrid loans offered on a 10-year term)
  • Temporary loan forbearance is available if certain requirements are met
  • Soft credit inquiry first, then hard credit inquiry if you apply for the loan
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Keep in mind some lenders, such as SoFi, CommonBond, and Laurel Road Bank, offer the option to transfer your PLUS loans to your child. If your child can handle making the payments, you might take advantage of this opportunity to get the debt out of your name.

Although these three lenders offer some of the most competitive rates for refinanced Parent PLUS Loans, keep an eye out for other refinancing providers as well. You might find a different lender with even better rates and terms for your loan.

You can also check with your local credit union to see if they have any options available, but be sure the math works out in your favor, as some aren’t offering the best rates. Don’t forget — it’s worth shopping around to find the most savings!

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at [email protected]

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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