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Student loan consolidation can streamline the federal student loans you’ve accumulated over the years. That can make it easier and possibly more affordable to pay down your debt. But this kind of consolidation can also have downsides, like being in debt longer and possibly paying more interest overall.

Currently, one-third of federal student loan debt is in the Direct Consolidation Loan program, according to EducationData.org. To understand your options, read on to take a closer look at the pros and cons of consolidating student loans and what options you may have. Equipped with this info, you can decide whether debt consolidation is the right next step for you.

What Is Student Loan Consolidation?

A Direct Consolidation Loan is a federal loan under the William D. Ford Direct Loan Program. Consolidation lets you combine one or more existing federal student loans into a new Direct Consolidation Loan. Here are some more details to note:

•   You don’t have to combine all of your federal loans; instead, you can select which eligible loan you’d like to consolidate. The consolidated loan balance is the total remaining principal from the loans you’ve chosen to merge, including any unpaid interest.

•   The loan will have a new interest rate and a longer repayment term. The loan servicer that’s managing your Direct Loan Consolidation repayment might change, too.

•   Most federal Direct Loans and Federal Family Education Loans (FFELs) can be consolidated.

•   Converting private student loans to federal loans through Direct Consolidation isn’t possible. Privately held education loans don’t qualify for this federal program.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Pros of Consolidating Student Loans

Student loan consolidation presents a handful of advantages that help you take control over your repayment journey. Below are the top benefits of a Direct Consolidation Loan of your federal student loans.

Easier to Manage

Over your education, you might’ve opened new loan accounts for various academic years. These loans have different monthly payment amounts and due dates, and they are also likely maintained by different loan servicers.

At its forefront, consolidation simplifies your repayment experience by bundling multiple loans into one neat package. You’ll have one outstanding balance to focus on with just one payment due date to remember so there’s less chance of accidentally missing it (a plus for your credit). And if you have any questions about your loans, you only need to reach out to one servicer.

More Time to Pay Off Your Student Loans

Consolidating your student loans resets your repayment clock. Direct Consolidation Loan terms can be as long as 30 years if you choose a Standard or Graduated Repayment Plan. (Do note, however, that extending your loan term can mean paying more interest over the life of your loan.)

Your maximum timeline to pay back the consolidated loan also depends on your loan’s principal balance:

•   10-year term for amounts under $7,500

•   12-year term for $7,500 to $9,999

•   15-year term for $10,000 to $19,999

•   20-year term for $20,000 to $39,999

•   25-year term for $40,000 to $59,999

•   30-year term for $60,000 or greater

If you need more runway to pay down your federal student debt, a consolidation loan might be an option.

Can Have a Lower Monthly Payment?

Thanks to the extended repayment term that a Direct Consolidation Loan offers, you’re left with a lower monthly payment. The loan’s repayment is stretched over a longer period so your fixed installments are much smaller than you originally had. (As mentioned above, though, you may pay more in interest over the repayment term if you extend it.)

For example, let’s say you’re combining two loans:

•   Loan 1 is $15,000 at 6%

•   Loan 2 is $30,000 at 6.4%

Your original monthly payment for loans 1 and 2 are $166.53, and $339.12, respectively. That’s $505.65 per month in student loan payments.

If you consolidate both loans your principal balance is $45,000. Over a 25-year term at 6.25%, your monthly payment is $296.85 — that’s more than $200 less each month.

Unlocks Income-Contingent Repayment for Parents

If you have a qualifying federal student loan, enrolling in one of four income-driven repayment (IDR) plans can help you access lucrative federal benefits, like Public Service Loan Forgiveness (PSLF). However, Direct PLUS Loans for parents aren’t eligible for IDR.

A consolidation loan gives borrowers with Direct Parent PLUS Loans a way into one IDR plan, the Income-Contingent Repayment (ICR) Plan. After consolidating Parent PLUS Loans, parents can repay the new loan under ICR over 25 years.

The ICR Plan calculates monthly payments either at 20 percent of your discretionary income, or the equivalent of an (income-adjusted) fixed payment over a 12-year period — whichever is lower.

You Can Choose a Federal Loan Servicer

When you have a federal student loan disbursed to you, the account is automatically assigned to a loan servicer. You don’t get a choice in which entity services your loan. Subsequent loans are also automatically assigned to a servicer and not necessarily the same one.

When applying for a Direct Consolidation Loan, you get to choose which loan servicer you prefer. If you’ve had a bad experience dealing with a servicer in the past, consolidation gives you the power to choose a servicer that might be a better fit. It’s currently the only way to switch your loan servicer within the federal system.

Recommended: Student Loan Refinance Guide

Cons of Consolidating Student Loans

Although student loan consolidation offers notable benefits, it also presents a number of potential downsides. Here are a few disadvantages to consider.

Unpaid Interest From Existing Loans, Capitalizes

An easily overlooked downside of loan consolidation involves unpaid interest. If you have unpaid interest on any of the loans you’re combining, the interest is added to your principal balance. This is called interest capitalization.

This means that your new consolidation loan will have a higher principal balance. And moving forward, you’ll pay interest on this higher balance. This could result in paying more for your student debt overall.

You Might Be in Debt Longer

You might be positioning yourself to stay in debt longer than your original repayment timeline. Although a longer term is helpful for lowering monthly payments, it can take a toll on you in other ways.

•   Being in debt longer can take a toll on your mental health. A 2023 study of 331 college graduates found that having high debt was tied to anxiety, depression, and problematic substance abuse.

•   Additionally, being in debt longer might result in delaying other life and financial goals, like buying a first home, starting a family, or saving money for retirement.

Longer Repayment Means More Interest

Another long-term negative effect of loan consolidation is that it can result in paying more interest over time. Although a longer term results in smaller installment payments, it means you’re delaying paying off your debt.

This delay comes at a cost in the form of interest charges. The more interest you pay toward your loan, the more your total borrowing cost.

Losing Federal Loan Benefits

Consolidating your federal student loans might result in lost borrower benefits. Some benefits at stake are interest rate discounts and principal rebates.

A Direct Consolidation Loan also typically resets any payment credit you’ve earned toward federal loan forgiveness under PSLF or an IDR plan. Past qualifying payments that were made before you consolidated won’t count toward the payment requirement for forgiveness. This can ultimately push back your loan forgiveness eligibility.

A one-time IDR account adjustment is in effect through December 31, 2023. If you consolidate your loans before January 1, 2024, qualifying IDR payments will still count toward loan forgiveness. After the adjustment deadline, however, you’ll lose this valuable payment credit.

(Worth noting: If you consolidate your federal student loans with a private loan, you forfeit federal benefits and protections. You’ll learn more about this option below.)

The Application Process Takes Time

How long it takes to consolidate student loans can also be an issue if you’re in a time crunch. Although filling out the application takes an estimated 30 or less, the process overall takes longer. Depending on your unique student loan situation, it can take anywhere from four to six weeks to complete the consolidation process.

Weighing the Pros and Cons for Yourself

Now you’ve learned what are the pros and cons of student loan consolidation when it comes to federal funds. There’s a lot to mull over if you’re entertaining the idea of consolidating student loans. Pros and cons (and how you prioritize them) might shift depending on your overall repayment strategy.

•   For example, consolidating your loans might make sense if you simply want to declutter your loan accounts or need a lower monthly payment. It might also make sense if your current loan type doesn’t qualify for loan forgiveness or an IDR plan, and consolidation is your only way forward.

•   However, consolidation might not be for you if you’re not working toward loan forgiveness and want to pay the least amount of money toward your education in the shortest time.

Alternatives to Student Loan Consolidation

Sometimes, consolidating student loans isn’t the best approach depending on your situation. If you’re on the fence about pursuing a Direct Consolidation Loan, here are a few other alternatives.

Income-Driven Repayment Plan

If your student loan payment is too difficult to manage and you won’t be able to afford it for the foreseeable future, ask your servicer about an income-driven repayment plan.

IDR plans calculate your monthly payment using your income and family size information. Payments are restricted to a small percentage of your discretionary income, and all plans have a longer-than-standard repayment period.

Most borrowers have four types of IDR plans to choose from:

•   Saving on a Valuable Education (SAVE). Payments are typically 10% of your discretionary income. Its term is 20 years if all your loans are for undergraduate study or 25 years if you’re repaying any graduate-level loans under the plan. This SAVE Plan replaces the REPAYE program.

•   Pay As You Earn (PAYE). Payments are generally 10% of your discretionary income over a 20-year term.

•   Income-Based Repayment (IBR). Your payment is 10% or 15%, over a 20- or 25-year term, depending on when you got the loan.

•   Income-Contingent Repayment (ICR). Over a 25-year term, you’ll pay the lesser of 20% of your discretionary income or the income-adjusted fixed payment you’d pay across 12 years.

Additionally, if you still have a loan balance after completing the plan term, the remainder is forgiven. However, the forgiven balance might be considered taxable income on your federal return.

Deferment or Forbearance

If you can’t manage your current student loan payment due to a temporary financial situation, consider deferment or forbearance.

These relief options are a short-term solution that lets you pause your required federal loan payments until your finances stabilize.

Typically, interest still accrues while you’re in student loan forbearance, and certain loans still accrue interest in deferment. Additionally, the months you’re in deferment or forbearance might not be credited toward loan forgiveness.

Student Loan Refinance

If you have loans that aren’t eligible for consolidation or you have strong credit and aren’t pursuing other federal benefits, refinancing student loans with a private loan is another alternative.

Student loan refinancing is offered by private lenders. You can refinance federal and existing private student loans during this process. The refinancing lender pays off your existing student loan balances and creates a new refinance loan in their place.

The new loan will have a new loan agreement, interest rate, and term. The repayment plans you can access will depend on your lender. Always check your rate with a handful of lenders to find an offer that fits your needs. A student loan refinancing calculator can help you see whether refinancing can save you money.

Keep in mind that refinancing federal loans results in losing access to federal benefits and programs. Learn more about the differences between private and federal student loans before changing your repayment strategy.

The Takeaway

Consolidation can be a useful strategy for some borrowers, but it’s not necessarily for everyone. Take stock of your short- and long-term repayment goals and how the pros and cons of consolidating federal student loans affect them. For instance, a lower monthly payment could be the right choice for one person, but the fact that you might be paying more interest for an extended term could be a no-go for someone else.

If a Direct Consolidation Loan isn’t right for you, explore other repayment paths, including refinancing student loans.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Can student loan consolidation affect your credit score?

Consolidating student loans can affect your credit in indirect ways. For example, payment history is the biggest factor for your FICO® score. Securing a manageable monthly payment via consolidation might help you avoid being late or missing a loan payment. These consistent payments by your due date can build your credit over time.

Can consolidated student loans be forgiven?

Yes, Direct Consolidation Loans are an eligible loan type for federal student loan forgiveness programs. Consolidated loans can be included if you’re earning forgiveness through programs, like Public Service Loan Forgiveness and through an income-driven repayment plan.

Does consolidating student loans lower interest rates?

No. Your Direct Consolidation interest rate is calculated based on the weighted average of the rates on your consolidated loans. This average is then rounded up to the closest one-eighth of a percent, and there’s no rate cap in place.

Photo credit: iStock/Jovanmandic

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0322022

The federal Direct Consolidation Loan program can help you manage your federal student loans. However, it also means a new loan account turns up on your credit report. You may be concerned about whether consolidating student loans in this way has a positive or negative impact on your credit. The short answer is that it can indirectly do both, but to varying degrees.

To help you understand exactly how your credit could change, read on. You’ll learn the ins and outs, so you can decide whether consolidating your student loans is the right financial move to make.

Can Student Loan Consolidation Have a Positive Impact on Your Credit Score?

If you are considering ways to better wrangle your debt, you may wonder, “Does consolidating student loans help my credit?”

Good question. Your borrowing activity and repayment habits do impact your credit score. One of the biggest — yet indirect — effects that consolidation has on your credit score is making your payments simpler. Consider these points:

•   Thirty-five percent of your FICO® score is based on your payment history. Making consistent and full monthly payments has the most dramatic impact on your credit score on a day-to-day basis.

•   However, your student debt is likely spread across multiple loans taken out during your years of education. Each of these loans has its own payment amount and due date, making it difficult to manage.

•   A Direct Consolidation Loan can cut through the clutter. It streamlines your repayment experience, which may mean you are less likely to miss a due date or forget a payment altogether. It can set you up for a positive payment history, which is an indirect way that you can see a credit score increase after student loan consolidation.

•   Incidentally, unlike private refinance loans, it will not involve a hard credit inquiry, which usually lowers your credit score a bit for a short period of time.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Can Student Loan Consolidation Hurt Your Credit Score?

Consolidating student loans can affect your credit score in a negative way, too. Can consolidating student loan debt hurt your credit score? To some extent, it might.

Here’s a closer look:

•   Fifteen percent of your FICO credit score calculation looks at the length of your credit history. It considers the age of your oldest credit account, like the first student loan you borrowed during your freshman year of school, and the age of your newest account. It also determines the average age of all of your open accounts.

•   Having open accounts that you’re actively repaying helps you build credit over time. Consolidating your original student loans effectively closes those older accounts.

•   This altered length of credit history could result in a less favorable treatment for your score. The impact on your score, however, is lessened over time as you make timely payments toward your consolidated loan.

Federal vs Private Student Loan Consolidation and Credit Score

Federal Direct Consolidation is exclusively a repayment option offered by the US Department of Education. This process doesn’t require a credit check, as noted above, and most federal loans can be consolidated.

In terms of private student loans, they are ineligible for Direct Loan consolidation. However, you can refinance existing federal student loans or private loans with a private lender. Understand these points:

•   If you decide to refinance student loans with a private lender, the process is similar to Direct Loan Consolidation in that it combines existing education loans into one. You can do this both as undergraduate and graduate school loan refinancing.

•   The newly refinanced loan is considered private student debt. It may be for a lower rate than you previously had, or it could offer a lower monthly payment for a longer term. (Note that when you refinance with an extended term, you may pay more interest over the life of the loan.)

•   The refinance lender pays off the student loans you’ve chosen to include and creates a new refinance loan. You’ll repay the refinance lender for the total balance of the combined loan, but at a new rate and repayment terms.

•   It’s important to recognize that when you refinance federal loans as private loans, they will no longer qualify for federal benefits and protection programs, such as deferment and forbearance. For these reasons, it’s wise to carefully consider whether refinancing federal loans is the right option for you.

Alternatives to Student Loan Consolidation

If, after weighing the pros and cons of student loan consolidation, you find it’s not for you, there are other repayment options available.

Income-Driven Repayment

One advantage of a Direct Consolidation Loan is it lets you make smaller monthly installments over a longer term. If, however, you can’t make your monthly federal loan payments for the foreseeable future, ask your servicer about income-driven repayment (IDR).

IDR offers repayment terms of 20 or 25 years, depending on the plan you’re on. Your income, family size, and chosen IDR plan determine what your reduced monthly payment is. For some eligible borrowers, your monthly payment could be as low as $0.

Additionally, if you still have a remaining balance after completing your IDR plan, the balance might qualify for loan forgiveness.

Federal Deferment or Forbearance

If you’re experiencing short-term financial hardship, you might be able to delay your federal student loan payments temporarily. The Department of Education offers deferment and forbearance programs that let you pause your payments without the loan going into default.

Keep in mind that while loans are in deferment, interest might accrue on certain federal loans. If you’ve requested forbearance, interest is charged during this period, regardless of the federal loan you have.

Student Loan Refinancing

Private student loans, mentioned above, aren’t eligible for the two alternatives just described. However, they may be a good solution in some situations. For instance, they might be a helpful option if you have private student loans that you are struggling to pay or have federal student loans and don’t have plans to take advantage of federal benefits (remember, you’ll forfeit those plus other protections).

Since private student loan refinancing requires a credit check, it’s best for borrowers with good credit. A student loan refinance might help you secure a lower interest rate or a lower monthly payment at a different repayment term. Private lenders have their own eligibility requirements, rates, and refinancing offers.

Shop around and try a student loan refinancing calculator to compare your offers and see if refinancing makes sense for you.

The Takeaway

Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.

However, if your main concern is getting relief from high monthly student loan payments, speak to your loan servicer or lender ASAP to see if your loans qualify for other repayment options. In some cases, refinancing with a private lender may be a good decision.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Can consolidating student loans directly raise your credit score?

No, consolidating your student loans doesn’t directly raise your credit score. It can simplify your monthly payments and possibly reduce your payment amount (though possibly extending your term and charging more interest over the life of the loan). These factors can help you maintain on-time payments, which can help build your score.

Can consolidating student loans directly lower your credit score?

Does student loan consolidation hurt your credit? It might temporarily lower your score: Loan consolidation can add a new open account to your credit record while closing an older one, which negatively affects your average length of credit history. Also, a new private loan can involve a hard credit inquiry, which can temporarily reduce your number.

Are there any indirect effects of student loan refinancing on your credit score?

Yes. Private student loan refinancing requires a hard credit check. This credit inquiry can temporarily lower your score by a few points for a short period of time. Additionally, refinancing might affect your average age of credit accounts and other factors that contribute to your credit score.

Photo credit: iStock/Ridofranz

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0322021

If you’ve finished graduate school, you’re likely looking for a job or are already working in your preferred area of study. Which is all good. But you may also be looking at that pile of grad school debt you have and wondering how you can make it go away ASAP.

If the interest rate on your loan (or loans) is higher than current rates, if you’re finding the monthly payment too high, or if you’re juggling multiple payments on different loans for school each month, you might want to consider graduate school loan refinancing.

Here, you’ll learn about what graduate student loan refinancing is, the pros and cons, and how to tell if it’s right for you.

What Is Graduate Student Loan Refinancing?

Can you refinance student loans? Absolutely!

And graduate school loan refinancing works like any other kind of loan refinancing: it’s a modification of student loans that involves you taking out a new loan to pay off your graduate school loans.

If you had multiple loan payments and multiple interest rates before, you will now have a single monthly payment and one interest rate, which may (or may not) be lower than the rate on the original loan or loans.

There are two important points to consider when thinking about student loan refinancing:

•   If you refinance for an extended term, you are likely to pay more interest over the life of the loan, even though your monthly payment may be lower.

•   When you refinance a federal loan with a private loan, you forfeit the benefits and protections of federal loans.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

How Does Refinancing Grad School Loans Work?

So why would you want to consider refinancing your graduate school loans? Here are some of the benefits:

•   One single monthly payment

•   Possibly a lower interest rate

•   Potential to lower your monthly payment.

First, if you’re making multiple payments for more than one school loan up to your graduate school loan limit, you might feel like you’re treading water and getting nowhere in actually paying off the loans. When you refinance these loans, you end up with one monthly payment, and it might be easier to increase how much you put toward your debt to pay off the loan faster.

If the interest rate you got on your original student loans for grad school was high, you might be able to save money with a lower rate by refinancing. If you’ve got great credit, you could qualify for low interest rates.

And if you’ve been struggling to make your monthly payment(s), you may be able to refinance for a longer period of time to get a reduced monthly payment. However, as mentioned above, you may pay more in interest over the full life of the loan.

To refinance graduate student loans:

•   Shop around among lenders who specialize in refinancing.

•   Calculating your student loan refinancing rate is important, because rates can vary drastically from one lender to another.

•   Find one lender that offers good rates and terms. And realize: the better your credit score, the better the terms you may qualify for.

•   Apply for your new loan.

•   Once approved, you pay off your student loan debt. You’ll begin paying on the new loan within a few weeks.

Recommended: Undergraduate vs. Graduate Student Loans

Pros and Cons of Refinancing Grad School Loans

When considering graduate school loan refinancing, it’s important to look at both the benefits as well as the drawbacks.

If refinancing federal student loans, you will forfeit federal benefits and protections

The Pros

As noted in the chart, these are the main advantages of refinancing graduate student loans:

•   You may be able to get lower graduate student loan refinance rates, a reduced monthly payment, and roll what you’ve been paying on multiple loans into one monthly payment.

•   This could make it easier and faster to pay off your grad school loan.

•   If you’ve been struggling to pay your loan, refinancing could make it easier to pay on time, which could build your credit. If your credit score rises, you could potentially qualify for better terms.

And if you’ve felt confused and lost about how to refinance your loan, you’re in the right place because SoFi’s got lots of resources for guiding you through student loan refinancing.

The Cons

Now, to review the potential downsides:

•   When you refinance a federal student loan with a private student loan, you forfeit federal benefits and protections, such as forbearance.

•   If your credit isn’t great, you might only qualify for loans with higher interest rates, which could cause you to pay more for your refinance loan.

•   If you don’t qualify for graduate loan refinancing, you might have to have a cosigner to get approval, which can be a challenging step.

•   If you refinance for an extended term, you may pay more interest over the life of the loan.

•   When you apply for a new loan, it requires a hard vs. soft credit pull, which can temporarily lower your credit score.

Recommended: Guide to Refinancing Student Loans

Alternatives to Refinancing Graduate School Loans

If you aren’t able to or don’t want to refinance graduate loans, there may be other options for you to lower payments:

•   If you took out a federal loan through the US Department of Education, you may qualify for one of several income-driven repayment plans, including the new SAVE plan that replaces REPAYE. You need to meet the income and household size requirements.

•   You may also be able to defer payments if you qualify. There are deferment plans for unemployment, economic hardship, military service, cancer treatment, and more.

•   If you work in certain public service roles, such as teacher or for a nonprofit, you might qualify for Public Service Loan Forgiveness. You may be required to work in a qualifying role for a certain number of years to receive forgiveness for your student loan.

Keep in mind that if you do not have federal graduate loans, these won’t be options available to you.

Another option is to simply get aggressive about paying off your loan. This might require setting aside things you usually spend money on like clothes and vacations for a while. Or perhaps taking in a roommate. But once you pay off your grad school loan, you can resume those luxuries.

Recommended: Refinancing Student Loans vs. Income-Driven Repayment Plans

The Takeaway

If you’re struggling to pay your student loan, or if you feel your interest rate is too high, graduate school loan refinancing could be a way to provide some relief and help you save money. The process can replace one or more monthly payments with a single payment that can be for a lower amount, though it may mean you extend the term of the loan and pay more interest over the life of the loan. Refinancing federal loans with a private loan, however, does involve forfeiting federal benefits or protections, so it may or may not be the right choice for you.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Is refinancing graduate school loans any different than other student loans?

Refinancing a graduate school loan works like it would for undergraduate student loans. By refinancing, be aware that you might lose any benefits you had with your federal student loan, such as the ability to defer or change to an income-driven repayment plan.

Is it easier to refinance graduate student loans?

Refinancing grad school loans, particularly if you have good credit, is fairly simple. Find a provider who offers competitive rates, get approved, pay off your previous student loans, and then start paying on your new loan.

What are some of the advantages of refinancing graduate student loans?

Refinancing student loans for grad school can help you get a lower interest rate. It can also help you consolidate multiple student loans into one monthly payment, and you could lower your monthly payment amount.

Photo credit: iStock/NeonShot

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0322020

If you took out student loans to pay for trade school and are nearing graduation or have already entered the working world, you may be wondering about ways to make your debt more manageable.

Perhaps you are a recent grad renting your own home for the first time, and you have a lot of new expenses (electricity, WiFi, etc.). Or maybe you are finding that the job you will soon be starting doesn’t pay quite as much as you had hoped. Whatever the scenario, whether you have one loan or more, if money is tight, you might want to explore refinancing.

Here, you’ll learn what you need to know about refinancing your trade school loans, so you can make the best decision for your situation.

What Is Trade School?

College isn’t for everyone, and yet many people still want to train for a profession that will be fulfilling and pay well.

Many opt to go to a trade school, which is a vocational or technical institution that provides training and technical skills. These skills prepare people for jobs as mechanics, health technicians, cosmetologists, plumbers, electricians, truck drivers, and more.

Trade school programs often last one to two years, depending on the program. You may also hear them referred to as vocational schools. The curriculum is usually a mix of coursework and hands-on requirements. Again, depending on the program you take and the school you attend, you may be a part- or full-time student.


💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Trade School Student Loan Options

Just like with colleges and universities, trade schools cost money, and when students can’t afford to pay out of pocket, they often take out student loans to help with the cost of trade school. One study recently found that the average trade school student takes on $10,000 in debt.

Let’s look at two options for trade school loans.

Federal Student Loans

Student loans for trade schools may be federal loans, though not all trade school programs qualify for these loans offered by the US Department of Education.

If your school is accredited and you qualify for federal loans, take time to understand the different types of federal student loans before you fill out the FAFSA (Free Application for Federal Student Aid) to see how much you can borrow.

Recommended: Important FAFSA Deadlines to Know

Private Student Loans

If your trade school isn’t accredited and you can’t get a federal loan, or you simply decide that a private student loan suits your needs better, there are private trade school student loan options. It’s important to understand how private student loans work because they are different from federal loans.

The interest on private loans may be higher than with federal loans, and unlike federal loans, you may be required to start paying back your loan immediately. Federal loans typically give you a grace period to finish your studies before beginning to pay back the loan. Federal loans also offer certain benefits and protections, unlike private student loans.

It may also be more difficult to qualify for a private loan, since you will need to prove you are creditworthy, and you may need a cosigner to get one.

Average Trade School Cost in the U.S.

Before you can look at trade school loans, you need to understand how much trade schools cost to attend.

On average, the net cost for a trade school is $17,600. This is the cost after receiving scholarships or grants.
The range of net costs is $12,000 to $20,000 depending on the field of study and where the school is located.

For example, the average net cost to become an auto technician is $17,000 to $22,000. The cost to become a veterinary technician is about $5,000 to $13,000.

5 Tips for Staying on Top of Your Trade School Loan Payments

When it comes to managing your financial wellbeing, paying off your debt, including trade school loans, should be among your top priorities. If you fall behind in your payments, you risk having a negative mark on your credit report, which could make it difficult for you to take out other loans or open credit cards later.

Here are a few tips to ensure you stay on top of paying for trade school loans.

1. Build It Into Your Budget

Your daily Starbucks fix isn’t a necessity; paying your trade school loan is. Make sure that loan payment is part of your monthly budget so that you always have enough to cover it.

2. Pay More Than the Minimum Payment

If you can afford even an extra $5 a month, pay the extra toward your loan. This will help reduce the time you spend paying it off. It can also lower the amount of interest you pay since you can pay the loan off early.

3. Automate Payments

You never have to worry about making your payment on time if you automate your finances. With your student loans, you can likely either do so through the lender’s website or as a bill pay from your bank. Some lenders even give you a reduction in interest if you sign up for automatic payments.

4. Choose the Date You Pay

Another thing many lenders do is allow you to select the day each month you’ll pay your bill. If you know you get paid on the fifth of each month, it makes sense to choose a date after that, like the eighth, so you are always sure you have enough in your account to cover the payment.

5. Refinance to Have a Single Payment

If you have multiple loans with different amounts due and different interest rates and payment dates, it may take you longer to pay them all off, not to mention increase your money stress. Refinancing your trade school student loan allows you to pay off the different loans and gives you another one with a single payment and interest rate.

However, it’s important to note that if you refinance for an extended term, you may pay more interest over the life of the loan. Also, when you refinance federal loans via a private loan, you forfeit federal benefits and protections.

Refinancing Loans for Trade School

If you’re considering refinancing student loans for trade school, there are many benefits to consider.

•   First, as mentioned, if you took out multiple loans for trade school, refinancing can be convenient. It can replace them all with a single new loan. You’ll now make just one payment each month, and you’ll have one interest rate.

•   Speaking of interest, depending on what the interest rate was when you took out your loans, refinancing them could help you get a lower interest rate.

•   If you’ve been struggling to make a high payment on your loan each month, refinancing for a longer period of time could help you lower your student loan payments (though you may pay more interest over the life of the loan).

If refinancing makes sense, explore lenders who offer refinance loans. Be sure to shop around, because interest rates and terms can vary considerably from one lender to another.

And before you apply, check your credit. The higher your credit score, the better the rates and terms you’ll qualify for. If your credit isn’t great, you might consider paying down some of your debt and waiting for your score to rise before applying for a loan so you can get a lower interest rate.

The Takeaway

Trade school can be a valuable way to train for a variety of career paths. But paying off trade school loans shouldn’t be a long-term struggle. In some situations, refinancing your trade school student debt can be a helpful option, as can adopting habits (like automating your finances) that help you prioritize your debt repayment.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Does FAFSA cover trade school?

The FAFSA (Free Application for Federal Student Aid) does cover trade schools, but only if they are accredited institutions.

How do you get trade school paid for?

If you don’t have the funds to pay for trade school out of pocket, there may be both federal and private student loans for trade school available. You can also research scholarships for trade schools.

Can you use student loans for trade school?

Yes. Student loans can be used to pay for trade school. Look into whether a trade school is accredited or not to determine what options may be available.

Photo credit: iStock/frantic00

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSL0322019

Congratulations on being ready to retire! You’ve spent a lifetime working hard, and it’s just about time to sit back and relax.

Before you do, though, you’ll want to make sure you can afford to retire. If you have outstanding debts, these could put a damper on your plans.

If you’re still paying your student loans, you probably are wondering: do you have to pay student loans after retirement? And if so, how does that debt negatively impact your plans to retire?

Keep reading to learn more on paying back student loans in retirement, including options for forgiveness and how to save money on your loans.

Paying Back Student Loans After Retirement

You’ve been saving for retirement for years, and you’re ready to reap the rewards…except you’ve got student loan debt hanging over your head.

Student loans, just like any kind of debt, are financial obligations you must take care of. If not, you risk negative marks on your credit report.

If you’re planning to retire soon, make sure to factor that monthly student loan payment into your budget, as you will still be obligated to make your payments in retirement.

Pros of Paying Back Student Loans After Retirement

The first benefit to paying off student loans after retirement is keeping your credit report squeaky clean. When you pay your loan each month, the positive behavior of an on-time payment and a reduction in your debt is reflected on your credit report. This could help your score rise, which could help you qualify for better interest rates on mortgages, personal loans, and credit cards.

Also, you want to pay off your student loans as quickly as possible to minimize the interest you pay. The sooner you pay off the loan, the less interest you’ll pay overall.

And of course, clearing any debt you have will leave you with more disposable income. Take a cruise with a loved one, pay off your house, or do anything else you’ve always dreamed of doing in retirement!

Cons of Paying Back Student Loans After Retirement

Things get tricky when it comes to student loans and retirement. Because you now have a limited income, it may be challenging to make those monthly payments or to pay off the loan in its entirety.

However, just like the benefit to paying back your loan was positive marks on your credit report, skipping payments or making late payments could have a negative impact on your credit.

And making those payments to your student loan will limit what you can afford to spend your money on. You may have to defer some of your retirement plans until your student loans are paid off.

At What Age Can You Stop Paying Student Loans?

Unfortunately, there is no age when you can stop paying your student loans. Retirement has no impact on the requirement for you to pay off your student loan debts, and your monthly payment will continue to be due each month until the loan is paid off.

Student Loan Forgiveness Options

There are several student loan forgiveness programs offered by the U.S. Department of Education. One is the Public Service Loan Forgiveness, which forgives student loans for professionals who work in public services (teachers, government employees, and nonprofits, for example). There are also income-driven repayment (IDR) plans that also may qualify for loan forgiveness.

Check with your student loan account holder to see if you qualify for any loan forgiveness options.

Options for Paying Off Student Loans During Retirement

When it comes to student loans and retirement, the sooner you pay off your loan, the sooner you can enjoy retirement. It’s important to get a plan for how you’ll pay off your student loan when preparing for retirement.
Start with a student loan calculator so you know how much you owe and how much you’ll pay in interest over time. Then, explore the following options.

Lump Sum

If you can afford to do so, pay off your loan all at once. You’ll cut out the interest you would have paid if you paid it out over time, and you’ll immediately have access to more monthly disposable income since it won’t be going toward a monthly loan payment.

Consolidate Your Loans

If you have multiple student loans from different providers, consider student loan consolidation. With this option, you combine multiple federal student loans into one new loan with one new monthly payment. The interest rate is typically the average of the interest rates on the loans you’re consolidating. While consolidating student loans streamlines your monthly payments, it typically won’t save you money overall.

Note: You can only consolidate federal student loans that qualify. You aren’t able to consolidate private student loans.

Refinance Student Loans

If you have private student loans, or a combination of federal and private loans, you might want to consider refinancing your student loans. This involves taking out a new loan you can then use to pay off your outstanding student loans. Ideally, you’ll receive a lower interest rate or shorten your loan term.

Keep in mind, though, that if you refinance federal loans, you lose eligibility for federal benefits, such as income-driven repayment plans and student loan forgiveness.

Student Loan Refinancing Tips from SoFi

If you go the refinancing route, be sure to shop around for the best rate. The better your credit, the lower the interest you may qualify for. But not all lenders are the same — some charge origination fees and other fees that can add up. So it’s worth a little effort to find the best lender for you.

Even though your finances may be limited in retirement, it’s important to prioritize your student loan debt. This may mean cutting out luxuries for a while until the debt is paid off.

And if you haven’t yet retired, consider continuing to work a little longer so you have the means to pay off your student loans before retiring. It may seem like a major sacrifice to work another year, but you’ll be glad you did when you’ve completely wiped out your student loan debt!

The Takeaway

Student loans and retirement may not go hand-in-hand, but you’re far from alone if you’re still struggling with your debt when you’re ready to retire. The important thing is to get a plan for paying it off, either all at once or over the shortest period possible.

One way to reduce your student loan debt is to refinance your student loans. By refinancing, you may be able to secure a lower interest rate or shorter loan term, enabling you to pay off your debt faster.

FAQ

Do you have to pay back student loans when you retire?

Yes, you are still responsible for paying back student loans, even in retirement.

How many years do you have to pay student loans?

There is no limit to how long you have to pay off student loans, but be aware that the longer it takes you, the more you will pay in interest.

Does your student loan get written off at 50?

No, your student loans do not get written off or canceled at any age.

Photo credit: iStock/maruco

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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.