Ask Jeni: Help With Consolidation and Refinancing

Ask Jeni is a service offered to tuition.io users that lets real borrowers ask Jeni Burckart, our student loan coach, questions about their student loans. Here’s an example of one of those questions.

I’m interested in learning about options for consolidating student loans. My child is beginning the loan repayment process and we would like to understand the options for consolidation and/or refinancing (lowering the monthly payments) for private student loans.

This is a great question. Since we’re only talking about consolidating or refinancing private student loans there isn’t a significant downside to doing it. Private student loans already lack many of the borrower protections granted to federal student loans such as income-driven repayment plans, deferment, and loan forgiveness. So if refinanced, who owns the loan, the interest rate, and terms of the loan will change.

When a borrower refinances they choose which loans they want to refinance, then all of those loans are consolidated into one loan at one interest rate. Consolidation alone combines loans but doesn’t change the interest rate of student loans overall (it’s a weighted average).

Refinancing companies are generally selective, the borrowers that get the best interest rates have high income and excellent credit scores. If borrowers have a low credit score or a low income, refinancing get’s tougher and may not improve the interest rate much. But it’s definitely worth a look.

I encourage your child to shop around some for different interest rates. In my experience Earnest, CommonBond, and ELFI tend to have the lowest interest rates. It’s important to use accurate information to see what type of interest rate estimates are offered. The rate estimators do a soft credit pull (so it doesn’t show up on the credit report). If your child likes what they see they can pick the two lowest interest rate companies and apply.