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Can You Convert Private Student Loans to Federal Student Loans?

By Jennifer Calonia · December 08, 2022 · 7 minute read

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Can You Convert Private Student Loans to Federal Student Loans?

Since private student loans are held by a private bank or lender, you can’t refinance private student loans to federal loans.

The reverse, however, is true. You can refinance private and federal student loans into a new private student loan with a new, ideally lower, interest rate. When you refinance federal student loans, it’s important to understand you lose access to federal benefits and protections.

Here’s what to know about why you can’t convert private student loans to federal loans, how you can combine both into a new refinanced loan, and how to make the choice that’s right for you.

Transferring Private Student Loans to Federal Loans

It isn’t possible to refinance private student loans to federal loans since private loans can only be held and owned by private financial institutions. Your federal student loans, on the other hand, can be converted into a private loan.

Although private and federal loans serve the same purpose — to finance your education — they differ in significant ways. One of the biggest distinctions is that private loans are not eligible for federal programs and benefits.

For example, federal student loan mandates during the COVID-19 pandemic offered automatic protection for federal borrowers. All federal student loans were put on administrative forbearance so that loan payments were paused without penalty. Also, borrowers weren’t responsible for any interest that accrues during this time.

Similarly, there’s been some speculation around overarching loan forgiveness and legislative proposals by the current administration. Some reports suggest that up to $10,000 in federal student loans might be canceled in the near future.

So can you refinance private student loans to federal loans if this legislation passes?
Again, you can’t convert private student loans to federal loans. If you’ve already refinanced your federal loans into a private loan, you’ll no longer qualify to benefit from this legislation if it comes to pass.

Recommended: Types of Federal Student Loans

How to Combine Private and Federal Student Loans

While there’s no way you can refinance private student loans to federal loans, the reverse is true: You can convert a federal loan to a private loan to combine your federal and private student debt into a new private loan.

Refinancing

You can combine federal and private student debt by refinancing your federal student loans into a private loan. Refinancing is offered by a private lender and requires a credit check. This repayment option lets you refinance existing federal loans, private student loans, or a combination of both, into a new private student loan.

The new refinancing lender pays your original loan(s) in full, and creates one refinanced student loan for the total amount it paid on your behalf. Over time, you’ll repay your new lender your principal refinance amount, plus interest.

Overall, a student loan refinance can help you combine multiple loans into a single loan at a new rate and potentially better terms. It also results in one monthly payment, and depending on your credit score and other qualifying factors, it might help you access a lower interest rate.

Be aware that since a refinanced federal loan is no longer a part of the federal student loan system, you’re giving up federal benefits and protections.

Recommended: Guide to Student Loan Refinancing

Consolidating

Federal student loans can be combined, or consolidated, through the federal Direct Loan program. When you consolidate your federal loans, they are combined into a single new loan with a new interest rate that’s an average of all of your existing federal loan rates, rounded to the nearest eighth of a percent.

While you may end up paying more interest over time because your new interest rate is an average of your current rates, reasons to consolidate your federal loans include simplifying your payments and qualifying for federal student loan programs such as income-driven repayment plans or Public Service Loan Forgiveness (if your existing federal loans weren’t part of these programs to begin with).

Private loans are not eligible for federal loan consolidation. As mentioned earlier, you can only combine federal and private student loans together when you refinance your loans into a new private loan.

Benefits of Federal Student Loans

Although converting your federal student loans into a private loan might have its advantages, there are serious caveats to consider before moving forward. Ultimately, refinancing federal loans through a private lender means you’ll lose access to valuable federal benefits and protections.

Debt Forgiveness

A major benefit that federal student loans offer, compared to private student loans, is access to student debt forgiveness and cancellation. Depending on your personal situation, you might be able to have a large portion of your federal student debt forgiven.

Some programs offered for federal loans include:

•  Public Service Loan Forgiveness (PSLF). Borrowers who work full-time for a government entity or nonprofit organization might be eligible for loan forgiveness. While working for a qualified employer, you must enroll in an income-driven repayment plan and make 120 qualifying payments toward your federal loans. Afterward, your remaining federal loan balance is forgiven.

•  Teacher Loan Forgiveness (TLF). Under TLF, educators who work full-time at an approved low-income school or service agency can earn up to $17,500 in forgiveness. You must agree to a five-year service contract and meet other requirements.

•  Perkins Loan Cancellation. If you have eligible Perkins Loans, you might be eligible for loan cancellation or discharge, depending on your employment service or unique circumstances.

Income-Driven Repayment

Federal student loan borrowers who are struggling to afford their standard 10-year monthly payments can explore one of the Department of Education’s income-driven repayment (IDR) plans.

It offers four types of income-driven repayment:

•  Pay As You Earn

•  Revised Pay As You Earn

•  Income-Based Repayment

•  Income-Contingent Repayment

Each repayment plan calculates your monthly payment based on 10% to 20% of your discretionary income and your family size. Some borrowers under an IDR plan may qualify for a $0 per month payment. The plans offer a longer repayment period at 20 or 25 years. After completing your repayment term, your remaining eligible federal loan balance is forgiven.

Understanding how income-based repayment works can help you gauge whether you’re willing to relinquish federal loan benefits for a private refinance loan.

Guaranteed Postponement

You might suddenly be hit with financial hardship, like being temporarily unemployed or experiencing an accident that inhibits your ability to make payments. In this stressful situation, federal student loans provide the option to request payment deferment or forbearance.

These federal protections pause your federal student loan payment requirement without penalty. During this time, interest still accrues and is added to your principal balance.

You’re ultimately responsible for repaying it back, as well as any interest that capitalizes when payments resume. However, this guaranteed postponement offers financial relief during difficult times.

Some private loans may offer deferment or forbearance options during times of financial, but the options vary by lender.

How Private and Federal Student Loans Differ

To decide whether refinancing your federal loans into a private loan makes sense for you, it’s important to know how private student loans vs. federal student loans differ.

Federal Student Loans

Private Student Loans

Provided by the US government. Provided by a private financial institution.
Most programs don’t require a credit check. Good credit, or a cosigner, is generally required.
Fixed interest rates. Fixed or variable rates offered.
Payments are deferred until you leave school or drop below half-time. Payments might be due while you’re enrolled in school.
Income-driven repayment options available. Repayment plans vary by lender.
Access to loan forgiveness or cancellation. Generally doesn’t offer loan forgiveness.
Offers interest subsidies for borrowers with financial need. Loan interest is typically not subsidized.
Offers extended deferment or forbearance. Rules on postponing payments vary by lenders.

Recommended: Private vs. Federal Student Loans

Student Loan Refinancing With SoFi

If you have private student loans, refinancing can be advantageous if you qualify for a lower interest rate that reduces your overall education debt. Use a student loan refinancing calculator to estimate your savings.

Before refinancing a federal student loan, decide whether you might need to leverage government benefits, like income-driven repayment. You’ll lose lucrative benefits, especially if sweeping loan forgiveness becomes available later, by refinancing all of your federal loans.

At SoFi, however, you can lock in low-interest rates before rates rise while keeping some of your federal student loans within the federal system. This program option helps you take advantage of loan cancellation, in case broad loan forgiveness becomes a reality but also helps you take advantage of lower rates now. There are no refinancing fees, and the online application tells you if you’re pre-qualified quickly.

Learn more about student loan refinancing to see if it’s the right choice for you.

FAQ

Is it possible to change private student loans to federal?

No, there is no way to transfer private student loans to federal loans. However, you can refinance your private and federal loans together, ideally to qualify for a lower rate or better loan terms.

Is it possible to change federal student loans to private?

Yes, you can change a federal student loan to a private student loan through refinancing. A private refinance lender will pay off your original federal loan, and you’ll have to make payments to your new private lender for the principal balance, plus interest.

How can you combine private and federal student loans?

You can combine private student loans and federal student loans with a refinance student loan. Refinance student loans are provided by a private lender so any federal loans you refinance will become private and you’ll lose the government benefits and protections you had under the federal loan system.


Photo credit: iStock/YayaErnst

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.


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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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