Student Loan Refinancing
EducationGlossary term
Definition
The process of taking out a new private loan with a lower interest rate to pay off one or more existing student loans, potentially saving money over the life of the loan. Refinancing can combine multiple loans into a single payment with a new rate and term based on your current creditworthiness. Be aware that refinancing federal loans into a private loan means losing access to federal benefits like income-driven repayment and loan forgiveness.
Related terms
- Private Student LoanA loan issued by a bank, credit union, or other private lender to help cover education costs that exceed what federal aid provides. Private student loans typically have variable interest rates, require a credit check, and may need a cosigner for students with limited credit history. They generally lack the flexible repayment options and forgiveness programs available with federal student loans.
- Student Loan ConsolidationThe process of combining multiple federal student loans into a single Direct Consolidation Loan with one monthly payment and a fixed interest rate based on the weighted average of your existing loans. Consolidation can simplify repayment and make you eligible for certain repayment plans or forgiveness programs you might not otherwise qualify for. Unlike refinancing, federal consolidation does not lower your interest rate but does preserve access to federal loan benefits.
- Federal Student LoanA loan funded by the federal government to help students pay for college or career school, offering fixed interest rates and flexible repayment options that are generally more favorable than private loans. Federal student loans include Direct Subsidized, Direct Unsubsidized, and Direct PLUS loans, each with different eligibility requirements and terms. Borrowers may also qualify for income-driven repayment plans and loan forgiveness programs.
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