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One of the biggest student loan myths out there is that borrowers can’t combine federal student loans and private student loans into one refinanced loan.

It’s understandable why people may think that, since this wasn’t always an option. And consolidation through the Department of Education is only available for federal student loans.

But now you can choose to combine federal and private loans. So it’s important to understand whether combining federal student loans and private student loans is right for you.

Can I Consolidate Federal and Private Student Loans?

Yes, you can combine private and federal student loans by refinancing them with a private lender.

Through this process, you actually apply for a new loan (which is used to pay off your original loans) and obtain one with a new — ideally lower — interest rate.

Why would you want to do this? In addition to the advantages of loan consolidation (like having one, simplified monthly payment), refinancing student loans at a lower interest rate may lead to lower monthly payments. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

Before you refinance federal student loans, there are a couple of things to think about. Here’s an easy decision tree to help you understand whether private student loan consolidation and refinancing federal loans is right for you:

Federal Student Loan Interest Rates

Some people assume that federal loans always offer the best rates, but this isn’t necessarily true.

Depending on loan type and disbursement date, new federal student loan interest rates are reassessed annually, every July. For the 2023-2024 school year, interest rates on new federal student loans range from 5.50% to 8.05% . Interest rates on federal student loans are determined by Congress and are fixed for the life of the loan.

Some borrowers — particularly those with established credit and a strong, stable income or who can find a cosigner with similar qualities — may be able to qualify for a private student loan with a rate lower than a federal loan. For example, grad school borrowers who have higher-interest-rate unsubsidized federal Direct Loans and borrowers with federal Direct PLUS loans may also be able to qualify for a private loan with a lower interest rate than those federal loans. Undergraduates are likely to find lower rates with federal student loans — without a cosigner or credit check.

When you apply to refinance, private lenders evaluate things like your credit history and credit score, in addition to other personal financial factors, in order to determine the interest rate and terms you may qualify for. This applies when you consolidate private student loans as well.

This means if you’ve been able to build credit during your time as a student, or your income has significantly improved, you may be able to qualify for a more competitive interest rate with a private lender when you refinance. (If you aren’t interested in or don’t qualify for student loan refinancing, a Direct Consolidation
Loan from the Department of Education might be worth a look — but you can’t combine federal and private loans into a Direct Consolidation Loan.) Private student loan consolidation is a different matter.

To get an idea of how much refinancing could potentially reduce the cost of interest on your loans, take a look at SoFi’s student loan refinancing calculator.

Federal Student Loan Benefits

When you refinance a federal student loan with a private lender, it becomes a private student loan. This means that the loan will no longer be eligible for federal benefits and protections.

Before you contemplate the idea of refinancing, consider taking a look at your loans to see if any of these federal loan benefits and programs apply to you — or whether you might want to take advantage of them in the future. Here are some to consider:

Student Loan Forgiveness

There are a few forgiveness programs available for borrowers with federal student loans. For example, under the Public Service Loan Forgiveness Program (PSLF), your Direct Loan balance may be eligible for forgiveness after 120 qualifying, on-time payments if you’ve worked for an eligible public sector entity that entire time.

Pursuing PSLF can require close attention to detail to ensure your loan payments and employer qualify for the program. The qualification requirements are clearly stated on the PSLF section of the Federal Student Aid website .

Similarly, the Teacher Loan Forgiveness Program is available for teachers who work in eligible schools that serve low-income families full time for five consecutive years. The total amount forgiven will depend on factors like the eligible borrower’s role and the subject they teach. The Federal Student Aid website has all the details of this program.

These forgiveness programs can be beneficial for people who choose careers in public service or education.

Income-Driven Repayment Plans

There are also a number of federal loan repayment plans that can ease the burden for eligible borrowers who feel their loan payments are higher than they can afford.

Under the student loan repayment plans and the other income-driven repayment options, monthly payments are calculated based on a certain percentage of the borrower’s discretionary income.

President Joe Biden’s Save on a Valuable Education (SAVE) Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

But if your income is over a certain threshold, you likely won’t benefit from these programs.

And if you do qualify but you’re at the high end of the spectrum, your slightly lowered payments may come at a disproportionate price in the form of accumulating interest. Although the Department of Education says that if you make your monthly payment under the SAVE plan, your loan balance won’t grow due to unpaid interest.

Deferment or Forbearance

Life can be unpredictable — sometimes that means borrowers might have difficulty making payments on their student loans. When this happens, borrowers with federal student loans may qualify for deferment or forbearance.

President Biden proposed a federal student loan debt canceling of up to $20,000 for qualified loan holders but it was struck down by the Supreme Court in a ruling released in late June 2023.

The three-year-long pause on federal student loan payments due to Covid-19 lockdowns ends in the Fall of 2023. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October.

For borrowers who can’t make payments, the DOE created a temporary on-ramp period through Sept. 30, 2024. This on-ramp period protects borrowers from having a delinquency reported to credit reporting agencies. And it prevents the worst consequences of missed, late, or partial payments.However, payments are still due, and interest will continue to accrue.

Also, there are ongoing deferment and forbearance options that allow borrowers to temporarily pause payments on their federal student loans in the event of economic hardship.

The biggest difference between the two is that with forbearance, the borrower is responsible for paying the interest that accrues on the loan during this time. Forbearance can have a major financial impact on a borrower, as any unpaid interest will be added to the original loan balance. With deferment, the borrower may or may not be responsible for paying the interest that accrues.

The type of loan you hold will determine whether or not you qualify for deferment or forbearance. Both options can be potentially helpful tools to borrowers going through a short period of financial difficulty, but both have important considerations .

Refinancing Your 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.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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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.

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-criteria 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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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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Most people dream of the day that they clock into work for the very last time. In most cases, we imagine that’ll be when we’re in our 60s. But what if you could take the freedom and independence of retirement and experience it 20 or 30 years earlier?

That’s the basic principle of the Financial Independence Retire Early (F.I.R.E) movement, a community of young people who aim to live a lifestyle that allows them to retire in their 30s or 40s rather than their 60s and 70s.

While it may sound like the perfect life hack, attempting to live out this dream comes with some serious challenges. Read on to learn more about the F.I.R.E. movement and the techniques followers use achieve their goal of early retirement. That can help you determine whether any of their savings strategies might be right for you.

What Is the FIRE Movement?

F.I.R.E stands for “financial independence, retire early,” and it’s a movement where followers attempt to gain enough wealth to retire far earlier than the traditional timeline would allow.

The movement traces its roots to a 1992 book called “Your Money or Your Life” by Vicki Robin and Joe Dominguez. F.I.R.E. started to gain a lot of traction, particularly among millennials, in the 2010s.

In order to achieve retirement at such a young age, F.I.R.E proponents devote 50% to 75% of their income to savings. They also use dividend-paying investments in order to create passive income sources they can use to support themselves throughout their retired lives.

Of course, accumulating the amount of wealth needed to live for six decades or more without working is a considerable feat, and not everyone who attempts F.I.R.E. succeeds.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

F.I.R.E. vs. Traditional Retirement

F.I.R.E. and traditional retirement both aim to help people figure out when they can retire, but there are major differences between the two.

Retiring Early

Given the challenge many people have of saving enough for retirement even by age 60 or 70, what kinds of lengths do the advocates of the F.I.R.E. movement go to?

Some early retirees blog about their experiences and offer tips to help others follow in their footsteps. For instance, Mr. Money Mustache is a prominent figure in the F.I.R.E. community, and advocates achieving financial freedom through, in his words, “badassity.”

His specific advice includes reshaping simple but expensive habits—like eliminating smoking cigarettes or drinking alcohol, and limiting dining out.

Of course, the basic premise of making financial freedom a reality is simple in theory: spend (much) less money than you make in order to accumulate a substantial balance of savings.

Investing those savings can potentially make the process more attainable by providing, in the best-case scenario, an ongoing passive income stream. However, many people who achieve F.I.R.E. are able to do so in part because of generational wealth or special circumstances that aren’t guaranteed.

For instance, Mr. Money Mustache and his wife both studied engineering and computer science and had “standard tech-industry cubicle jobs,” which tend to pay pretty well—and require educational and professional opportunities not all people can access.

In almost all cases, pursuing retirement with the F.I.R.E. movement requires a lifestyle that could best be described as basic, foregoing common social and leisure enjoyments like restaurant dining and travel.

Target Age for Early Retirement

Early retirement means different things to different people. While some individuals may consider age 55 to be an early retirement, FIRE proponents aspire to retire in their 40s or even in their 30s, if possible.

According to the 2024 SoFi Retirement Survey, 12% of respondents say their target retirement age is 49 or younger. Men were more likely than women to choose this response.

Of those whose target retirement age is 49 or younger:

•   66% have a household income of less than $100,000

•   60% are men,

•   47% are single

•   27% are age 24 or younger

Source: SoFi Retirement Survey, April 2024

Saving Strategies for Retiring Early

Retiring early can involve making some serious adjustments to an individual’s current lifestyle. People who follow the FIRE movement generally try to put 50% to 75% of their income in savings. That can be challenging because once they pay their bills, there may not be much leftover for things like going to the movies or having dinner out.

Of the SoFi survey respondents who say they want to retire at age 49 or younger, 18% are not using any strategies that might help them retire early. Most of the rest are working on it, however — and these are the strategies they’re using to try to retire early:

•   40%: Non-retirement investment accounts (such as brokerage accounts, real estate,and so on)

•   36%: FIRE strategies

•   29%: Maxing out tax advantaged accounts (401(k)s, IRAs, HSAs, etc.)

•   24%: Debt payment strategies such as the snowball and avalanche

•   23%: Roth conversion ladder

•   21%: Working a second job/passive income

Traditional Retirement

Most working people expect to retire sometime around the age of 65 or so. For those born after 1960, Social Security benefits can begin at age 62, but those benefits will be significantly less than they would be if an individual waited until 67, their full retirement age, to collect them.

People saving for traditional retirement typically save much of their retirement funds in tax-incentivized retirement accounts, like 401(k)s and traditional IRAs, which carry age-related restrictions. For example, 401(k)s generally can’t be accessed before age 59½ without incurring a penalty.

Even a traditional retirement timeline can be difficult for many savers. Recent data from the Federal Reserve shows that approximately 25% of Americans have no retirement savings whatsoever. Still, Americans between the ages of 25 to 40 plan to retire at age 59, according to a 2022 survey.

Online calculators and budgeting tools can help you determine when you can retire—and are customizable to your exact retirement goals and specifications.

💡 Haven’t started an IRA yet? Check out: How to Open an IRA

Financial Independence Retire Early: Pros and Cons

Although financial independence and early retirement are undoubtedly appealing, getting there isn’t all sunshine and rainbows. There are both strong benefits and drawbacks to this financial approach that individuals should weigh before undertaking the F.I.R.E. strategy.

Pros of the F.I.R.E. Approach

Benefits of the F.I.R.E. lifestyle include:

•  Having more flexibility with your time. Those who retire at 35 or 40, as opposed to 65 or 70, have more of their lifetime to spend pursuing and enjoying the activities they choose.

•  Building a meaningful, passion-filled life. Retiring early can be immensely freeing, allowing someone to shirk the so-called golden handcuffs of a job or career. When earning money isn’t the primary energy expenditure, more opportunities to follow one’s true calling can be taken.

•  Learning to live below one’s means. “Lifestyle inflation” can be a problem among many working-age people who find themselves spending more money as they earn more income. The savings strategies necessary to achieve early retirement and financial independence require its advocates to learn to live frugally, or follow a minimalist lifestyle, which can help them save more money in the long run—even if they don’t end up actually retiring early.

•   Less stress. Money is one of the leading stressors for many Americans. Gaining enough wealth to live comfortably without working could wipe out a major cause of stress, which could lead to a more enjoyable, and healthier, life.

Cons of the F.I.R.E. Approach

Drawbacks of the F.I.R.E. lifestyle include:

•  Unpredictability of the future. Although many people seeking early retirement thoroughly map out their financial plans, the future is unpredictable. Social programs and tax structures, which may figure into future budgeting, can change unexpectedly, and life can also throw wrenches into the plan. For instance, a major illness or an unexpected child could wreak havoc on even the best-laid plans for financial independence.

•  Some find retirement boring. While never having to go to work again might sound heavenly to those on the job, some people who do achieve financial security and independence and early retirement struggle with filling their free time. Without a career or specific non-career goals, the years without work can feel unsatisfying.

•  Fewer professional opportunities. If someone achieves F.I.R.E. and then discovers it’s not right for them—or must re-enter the workforce due to an extenuating circumstance—they may find reintegration challenging. Without a history of continuous job experience, one’s skill set may not match the needs of the economy, and job searching, even in the best of circumstances, may be difficult.

•  F.I.R.E. is hard! Even the most dedicated advocates of the financial independence and early retirement approach acknowledge that the lifestyle can be difficult—both in the extreme savings strategies necessary to achieve it and in the ways it changes day-to-day life. For instance, extroverts might find it difficult to forgo social activities like eating out or traveling with friends. Others may find it challenging to create a sense of personal identity that doesn’t revolve around a career.

Investing for F.I.R.E.

Investing allows F.I.R.E. advocates—and others—to earn income in two important ways: dividends and market appreciation.

Dividends

Shareholders earn dividend income when companies have excess profits. Dividends are generally offered on a quarterly basis, and if you hold shares of a stock you could earn them.

However, because dividend payments depend on company performance, they’re not guaranteed, those relying on them to live should have other income sources (including substantial savings accounts) as a back up income stream.

Market Appreciation

Investors can also earn profits through market appreciation when they sell stocks and other assets for a higher price than what they initially paid for them.

Even for those who seek retirement at a traditional pace, stock investing is a common strategy to create the kind of compound growth over time that can build a substantial nest egg. There are many accounts built specifically for retirement investing, such as 401(k)s, IRAs, and 403(b) plans.

However, these accounts carry age-related restrictions and contribution limits which means that those interested in pursuing retirement on a F.I.R.E. timeline will need to explore additional types of accounts and saving and investing options.

For example, brokerage accounts allow investors to access their funds at any point—and to customize the way they allocate their assets to maximize growth.

The Takeaway

Whether you’re hoping to retire in a traditional fashion, shorten your retirement timeline, or are just looking to increase your wealth to achieve shorter-term financial goals, like buying a new car—investing can be one of the most effective ways to reach your objectives.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

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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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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