Editor's Note: Since the writing of this article, the federal Student Loan Debt Relief program has been blocked due to two court decisions; the Supreme Court has agreed to hear arguments for both appeals in February. In the meantime, the Biden administration extended the federal student loan payment pause into 2023. The US Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
Shopping around for the best value is tried and true advice that extends to most things you can sink money into. It can be especially true in the world of student loans — an economic ecosystem where there are approximately 45 million borrowers holding more than $1.6 trillion in debt, and payments to erode that debt have been slowing on the whole. Those numbers and that trend mean that decisions about student loans are big, and not to be taken lightly.
Reasons for choosing a different lender than one previously used might include looking for better service, a lower interest rate, or better terms. Some borrowers may want to refinance their existing loans in addition to getting an additional loan, so they can minimize the number of lenders they work with and the number of payments they have to keep track of.
Borrowers who have federal student loans are encouraged to carefully consider refinancing those loans with a private lender, because in doing so they will no longer be eligible for deferment, forbearance, or other repayment or relief aid through the federal government. Covid-related federal loan forbearance programs and 0% interest periods being offered are only in effect through Dec. 31, 2022. It might be helpful to use a student loan payoff calculator to get an idea of how changes to your student loans might affect your decision.
How to Change Student Loan Lenders
There are lots of reasons to consider transferring student loans to another lender while still in college. But something important to understand about this change is it typically will mean seeking out a private student loan lender. When you choose to accept a federal student loan, the Department of Education (ED) assigns one of 11 loan servicers to handle the loan on its behalf, and it’s possible your loan might be transferred to a different servicer during its lifetime. Borrowers are notified by the ED in the case of a transfer, but no matter which servicer a loan is assigned to, the borrower cannot choose—the ED makes that decision.. The private loan marketplace is much more flexible in this regard (the borrower chooses the lender).
So, why would you want to change lenders in the first place? Private student loan lenders might offer rates, terms and repayment options that may work better for your financial situation. Some lenders may be a better fit for graduate students, others for refinancing, and others for co-signer flexibility. Benefits offered by private lenders might also be attractive to borrowers. For instance, SoFi offers members a discount on college prep classes, exclusive rate discounts for eligible members, and career coaching.
When shopping around for private student loan lenders, knowing what criteria are deal makers and also deal breakers for your unique situation is helpful. Borrowers might qualify for a higher loan amount from a private lender vs. a federal student loan, but terms and interest rate typically depend on an applicant’s credit and other financial factors. A private lender might offer a variable-rate loan, which means market changes could impact your monthly payments in unpredictable ways. With so many variables in the mix, it isn’t unusual for students to use both federal and private student loans to cover their college costs.
Recommended: Fixed vs. Variable Rates: What’s the Difference?
In most cases, though, federal student loans tend to offer better borrower protections—like loan forgiveness for work in certain public service fields, deferment options, or income-driven repayment plans—than private student loans. Qualifying for federal student loans may also be easier than qualifying for a private student loan for some borrowers because federal student loans don’t typically require a credit check.
Lenders vs Servicers: What’s the Difference?
It might not seem like there is much of a difference between lenders and servicers, but the two play distinctly different parts in the business of borrowing money. Lenders actually make the loans, while servicers collect the payments from the borrowers.
The Department of Education, i.e., the federal government, is the lender of federal student loans. The companies who work on behalf of the government to collect student loan payments are the servicers. Borrowers who need assistance determining their servicer can call the Federal Student Aid Information Center . The Department of Education’s National Student Loan Data System Database gives borrowers a comprehensive look at their student aid. With the information all in one place, it might be easier to make a decision about making changes to student loans.
Private lenders also use loan servicers. Just like federal student loans, the company that makes the loan will be different from the company the borrower pays. The servicer and payment information is typically found on the most recent student loan statement. Payments can usually be made in a number of ways: online, by mail, by phone, or even through an app if the servicer has one.
Recommended: How to Find Out Who Your Student Loan Lender Is
Refinancing as Transferring
Refinancing student loan debt is just a way to turn an existing loan into a newer one, ideally in a way that will result in potentially lower interest rates or lower monthly payments. Most student loans, like any other large consumer loan, are eligible for refinancing for qualifying applicants. Borrowers who have only federal student loans may be interested in seeking a loan consolidation via a Direct Consolidation Loan, but as the ED warns, the trade-off here is a simpler payment but also the potential loss of some benefits, such as interest rate discounts.
Furthermore, a Direct Consolidation Loan doesn’t typically result in an interest rate savings — it has a fixed interest rate for the life of the loan, calculated as the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent. So consolidation is not usually a way to save money on interest payments, but is more an option to streamline repayment—one loan means only one check to write each month.
Private lenders will typically do a credit check, which includes personal financial details like income and credit histories, and could be a potential drawback for students who may not have much of either. Students might have a tougher time qualifying for a loan on their own with that requirement, and a cosigner may be required on the loan.
Doing Your Homework
There are a lot of moving parts to consider when thinking about using a different lender from one you’ve used in the past or transferring an existing loan to a new lender. What aspects of your student loans would benefit from transferring? What don’t you like about your current lender or servicer? What services or benefits would you like to get from a lender?
Getting answers to your questions might involve some introspection on your part, but getting help with the technical details is available. SoFi can help make the process of paying for school a little less stressful. Definitely shop around, but take a trusted partner with you.
SoFi Student Loan Refinance 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.
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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.
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. SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.
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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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
SoFi Student Loan Refinance
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.