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How and When to Combine Federal Student Loans & Private Loans

March 03, 2022 · 7 minute read

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How and When to Combine Federal Student Loans & Private Loans

One of the biggest student loan myths out there is that borrowers can’t consolidate federal student loans and private student loans into one refinance loan. It’s understandable why people think that, since this wasn’t an option for many years.

But now that the choice is available, it’s important to understand whether federal student loan consolidation or private student loan refinancing is right for you—especially if there’s the potential for significant cost savings on the line.

Can I Consolidate Federal and Private Student Loans?

While it’s not possible to use the federal Direct Loan consolidation program to combine your federal student loans with private loans, it is possible to combine private and federal student loans by refinancing them with a private lender.

Through this process, you actually apply for a new loan (which is used to pay off your original loans) and you’re given a new—ideally lower—interest rate.

Why would you want to do this? In addition to the advantages of loan consolidation (like having one, simplified monthly payment), refinancing student loans at a lower interest rate can mean big benefits, like lowering monthly payments, potentially reducing the time it takes to pay off your debt, and cutting down on the total interest you pay over time.

Before you refinance federal student loans, there are a couple of things to think about. Here’s an easy decision tree to help you understand whether refinancing federal loans is right for you:


Federal Student Loan Interest Rates

Some people assume that federal loans always offer the best rates, but this just isn’t necessarily true.

Depending on loan type and disbursement date, new federal student loan interest rates are reassessed annually, every July. For the 2019-2020 school year, interest rates on new federal student loans range from 4.53% to 7.08% . Interest rates on federal student loans are determined by Congress and are fixed for the life of the loan.

Some borrowers—particularly those with established credit and a strong, stable income or who can find a co-signer with similar qualities—may be able to qualify for a private student loan with a rate lower than a federal loan. For example, grad school borrowers who have higher-interest-rate unsubsidized federal Direct Loans and borrowers with federal Direct PLUS loans may also be able to qualify for a private loan with a lower interest rate than those federal loans. Undergraduates are likely to find lower rates with federal student loans—without a cosigner or credit check.

When you apply to refinance, private lenders evaluate things like your credit history and credit score, in addition to other personal financial factors, in order to determine the interest rate and terms you may qualify for.

This means if you’ve been able to build credit during your time as a student, or your income has significantly improved, you may be able to qualify for a more competitive interest rate with a private lender when you refinance. (If you aren’t interested in or don’t qualify for student loan refinancing, a Direct Consolidation Loan from the Department of Education might be worth a look—but you can’t combine federal and private loans into a Direct Consolidation Loan.)

To get an idea of how much refinancing could potentially reduce the cost of interest on your loans, take a look at SoFi’s student loan refinancing calculator.

Federal Student Loan Benefits

When you refinance a federal student loan with a private lender, it becomes a private student loan. This means that the loan will no longer be eligible for federal benefits and protections.

This is often the reason why it may not make sense to refinance federal loans. Before you contemplate the idea of refinancing, consider taking a look at your loans to see if any of these federal benefits apply to you—or whether you might want to take advantage of them in the future. Here are some to consider:

Student Loan Forgiveness

There are a few forgiveness programs available for borrowers with federal student loans. For example, under the Public Service Loan Forgiveness Program (PSLF), your Direct Loan balance may be eligible for forgiveness after 120 qualifying, on-time payments if you’ve worked for an eligible public sector entity that entire time.

Pursuing PSLF can require close attention to detail to ensure your loan payments and employer qualify for the program. The qualification requirements are clearly stated on the PSLF section of the Federal Student Aid website .

Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in eligible schools that serve low-income families full time for five consecutive years. The total amount forgiven will depend on factors like the eligible borrower’s role and the subject they teach. The Federal Student Aid website has all the details of this program.

These forgiveness programs can be beneficial for people who choose careers in public service or education.

Income-Driven Repayment Plans

There are also a number of federal loan repayment plans that can ease the burden for eligible borrowers who have low incomes or feel their loan payments are higher than they can afford.

For example, the government’s Pay As You Earn (PAYE) and Income-Based Repayment (IBR) programs allow borrowers to make reduced monthly payments based on income and family size.

Under these student loan repayment plans and the other income-driven repayment options, monthly payments are calculated based on a certain percentage of the borrower’s discretionary income. But if your income is over a certain threshold, you likely won’t benefit from these programs.

And if you do qualify, but you’re at the high end of the spectrum, your slightly lowered payments may come at a disproportionate price in the form of accumulating interest. Since the life of the loan is extended under these repayment plans, it can mean that borrowers will pay more in interest over the life of the loan.

At the end of the repayment period, the remaining balance on the loan is eligible to be forgiven under many income-driven repayment plans. But unless the borrower qualifies for a program like PSLF, the amount for given will be taxed as income. There’s a lot of information to be aware of when considering an income-driven repayment plan.

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Deferment or Forbearance

Life can be unpredictable—sometimes that means borrowers might have difficulty making payments on their student loans. When this happens, borrowers with federal student loans may qualify for deferment or forbearance.

Both options allow borrowers to temporarily pause payments on their federal student loans in the event of economic hardship.

The biggest difference between the two is that with forbearance, the borrower is responsible for paying the interest that accrues on the loan during this time. Forbearance can have a major financial impact on a borrower, as any unpaid interest will be added to the original loan balance. With deferment, the borrower may or may not be responsible for paying the interest that accrues.

The type of loan you hold will determine whether or not you qualify for deferment or forbearance. Both options can be potentially helpful tools to borrowers going through a short period of financial difficulty, but both have important considerations .

Refinancing Your Student Loans

Combining federal student loans and private loans through the refinancing process won’t make sense for every person, but it can provide great benefits for some.

Now that you know it’s an option and understand how it works, you’re hopefully in a better position to assess whether it’s the right option for you.

While refinancing your federal student loans will eliminate you from federal protections and benefits, it’s worth noting that some private lenders offer their own benefits and protections. At SoFi, for example, if you lose your job through no fault of your own, you may qualify to pause your payments. And SoFi can even help you find a new job through our career services program for members.

If you’re interested in refinancing your student loans, you might want to consider evaluating a few different options, since requirements—as well as interest rates and loan terms—can vary from lender to lender.

In addition to unemployment protection for qualifying members, when you refinance your student loans with SoFi there are no origination fees or prepayment penalties.

The application process can be completed easily online and you’ll have access to customer service seven days a week. You can find out if you prequalify, and at what rates, in just a few minutes.

Learn more about refinancing your student loans with SoFi.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

$500 Student Loan Refinancing Bonus Offer: Terms and conditions apply. Offer is subject to lender approval, and not available to residents of Ohio. The offer is only open to new Student Loan Refinance borrowers. To receive the offer you must: (1) register and apply through the unique link provided by 11:59pm ET 11/30/2021; (2) complete and fund a student loan refinance application with SoFi before 11/14/2021; (3) have or apply for a SoFi Money account within 60 days of starting your Student Loan Refinance application to receive the bonus; and (4) meet SoFi’s underwriting criteria. Once conditions are met and the loan has been disbursed, your welcome bonus will be deposited into your SoFi Money account within 30 calendar days. If you do not qualify for the SoFi Money account, SoFi will offer other payment options. Bonuses that are not redeemed within 180 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state, or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. SoFi reserves the right to change or terminate the offer at any time with or without notice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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