Consolidation and refinancing can be real options when we try to simplify student loan repayment or reduce monthly installments. Combining student loan balances under one roof, through consolidation or refinancing, can potentially lower the borrower’s interest rate (in the case of refinancing), extend the repayment period or both, which can reduce monthly repayment to a more affordable level. Can you refinance a student loan after consolidation?
Many borrowers are wondering if they can refinance student loans after consolidation. In short, if you have previously consolidated student loans – be it through the government or through a private lender – you can still refinance student loans if you are eligible.
When you should not refinance student loans
Basically you can’t or shouldn’t refinance if:
- You have federal loans and you can see a drop in your income. If your work is or may be affected by a coronavirus pandemic – or there is a chance that you might change your career – otherwise refinance federal student loans. You miss federal student loan options as well as government programs such as income-based repayment.
- You strive to forgive your student loan. Refinancing federal loans makes them ineligible for federal loan programs, including forgiveness of public loans and forgiveness of teacher loans.
- You have recently declared bankruptcy. Refinancing student loans is not impossible if you are declared bankrupt, but it is more difficult. Many lenders require time – from four to 10 years – from bankruptcy.
- You have recently repaid your student debt. The default past is the red flag for lenders. If the default is removed from the credit report, which usually takes seven years, you can qualify if you meet the criteria for credit, income and other insurance criteria.
- Paying back loans will take you much longer. Refinancing to a low monthly installment can mean a longer loan period and higher interest rates. Let’s assume you have five years to a 10-year loan period and you refinance for a new 10-year loan. In general, you’ll pay more interest because you pay back loans for a total of 15 years instead of 10.
Can I refinance student loans after consolidation?
Yes, you can refinance student loans after consolidation. If you have already consolidated student loans, you can refinance student loans. There are no fees for refinancing student loans or a prepayment penalty. There is also no frequency limit for refinancing student loans.
Is consolidation or refinancing better?
Here’s a short summary that will help you make a more informed decision:
- Direct consolidation: an organizational tool; the same or slightly higher interest rate; federal repayment plans
- Student loan refinancing: organizational tool; lower interest rate; flexibility; save money; pay off student loans faster