Questions about Refinancing Student Loans
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By Mark Kantrowitz

June 23, 2020

During our webinar about Student Loans 101 (Refinancing), participants asked dozens of questions about consolidation, refinance, cosigner release, repayment plans, interest rates and loan forgiveness. Here are the answers to many of the questions about refinancing student loans.

Questions about Consolidation and Refinance

Does consolidation or refinancing affect the death of borrower/student debt forgiveness provision?

All federal student loans, including consolidation loans, are eligible for the death and disability discharges. So, consolidation will not affect the eligibility for federal student loans for the death and disability discharges.

Some private student loan refinances offer death and/or disability discharges, some do not. Thus, refinancing may affect eligibility for a death and disability discharge, depending on the lender. 

Can you consolidate more than once?

Federal student loans can be consolidated more than once. You can even consolidate a single loan.

The most common scenarios in which a borrower might consolidate federal student loans a second time include:

  • The borrower originally obtained a consolidation loan in the FFEL program and now wishes to obtain a Federal Direct Consolidation Loan.
  • The borrower consolidated their undergraduate federal student loans and now wishes to consolidate the consolidation loan with graduate federal student loans. 
  • The borrower wishes to change servicers of their federal student loans. 

A second consolidation will not qualify the consolidation loan for the new federal student loan interest rates.

Wouldn’t you be better off paying a bit more on the higher rate loan to pay it off more quickly?

Yes. Paying off the loan with the highest interest rate will save the most money. It will also reduce the average interest rate on all the borrower’s student loan debt. It may also lead to all of the borrower’s loans being paid off quicker. 

This is sometimes a better strategy than refinancing student loans to get a lower interest rate. If most of your student loans have low interest rates, you should either refinance just the high-rate loans or target the high-rate loans for quicker repayment. 

Our Loan Refinancing Calculator shows you how much you can lower your monthly loan payments or total payments by refinancing your student loans into a new loan with a new interest rate and new repayment term.

Questions about Cosigner Release

What percentage of cosigner releases are approved by lenders?

According to the CFPB, only 10% of private student loan borrowers apply for cosigner release. Of borrowers who apply for cosigner release, only 10% are approved. That means that only 1% of private student loan borrowers receive cosigner release. 

These are the loan lenders that offer cosigner release.

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Questions about Choosing a Lender

Any suggestions or recommendations on particular lenders/banks to use for refinancing purposes? released a set of objective ratings of private student loan programs. This makes it possible to compare private student loans based on cost, availability, flexibility and customer service. 

Check out our list of the best lenders to refinance student loans

Questions about Parent PLUS Loans

Parent PLUS – Is this a private or federal loan? 

Parent PLUS loans are federal loans. 

Currently, Federal Parent PLUS loans are made in the Direct Loan program. 

Previously, Federal Parent PLUS loans were made in both the Direct Loan program and the Federal Family Education Loan Program (FFELP). The FFELP loans are federal loans that were made by private lenders, but guaranteed against default by the federal government. The terms of these loans were set by the federal government, as specified by the Higher Education Act.

Questions about Repayment Plans

If you are on an income-driven repayment plan, can you pay more on months that you can afford to do so without hurting your status?

If you pay less than the required payment, you will be considered delinquent on the debt. If your income will be volatile from one month to the next, it might be a good idea to save the extra income to ensure that you can continue to make the full required payment each month. 

If you pay at least the required payment each month, paying more will not affect your eligibility for income-driven repayment. However, if you are seeking loan forgiveness, paying more will reduce the amount of loan forgiveness you eventually receive. 

Use our income-driven repayment calculators to compare the monthly loan payments and total payments for each of the income-driven repayment plans.

Questions about Interest Rates and Refinancing Student Loans

Can we pay off the current federal student loan (we’ve only used the first year of it so far) and take out a new one at the new lower rate after July 1 or is there a catch to doing this?

Federal student loans have annual and aggregate loan limits. If you pay off your current federal student loans, you will not be able to borrow against the previous year’s annual loan limits, only the current year’s loan limits.

For example, suppose the student borrowed $5,500 in Federal Direct Stafford Loans as a college freshman. If you pay off the freshman year loans, the student will be able to borrow only up to the sophomore year loan limit as a college sophomore, which is $6,500. 

In most cases, the student will need the sophomore year loans to pay for college costs during the sophomore year.  But, if the student does not need to borrow the full amount as a sophomore, they can borrow up to the annual limit and use the excess to repay part of the previous year’s loans.

This mostly occurs when the student does not borrow to the limit each year because the family is able to pay for some of their college costs using cash. 

In addition to the annual and aggregate limits, student loans are capped at the college’s cost of attendance minus other aid received. 

Can I refinance an existing federal loan with the same provider? The interest rates that I have are old and very high compared to the current market rates.

When you consolidate a federal student loan, you can choose the loan servicer. This can be the same servicer, if the loan servicer participates in the Federal Direct Loan program.

Consolidation of federal student loans does not provide access to current interest rates. The interest rate on a federal consolidation loan is the weighted average of the interest rates on the old loans, rounded up to the nearest 1/8th of a percentage point. This does not really change the cost of the loans.

You may be able to refinance your federal student loans into a private student loan. The interest rate will be based on your current credit scores. If you have very good credit scores, you may be able to qualify for a lower interest rate. 

But, beware. If you refinance a federal loan into a private student loan, you will lose the superior benefits of federal loans, which include the payment pause and interest waiver, better deferment and forbearance options, income-driven repayment and loan forgiveness options. 

Questions about Student Loan Forgiveness

If you refinance (to a private loan) does it make sense to do that in increments, so you’re keeping some with the Dept of Ed in case the federal government decides to forgive all or parts of student loans, as several candidates have talked about?

If the federal government forgives only federal student loans, private student loans will not be eligible for loan forgiveness, even if the private student loan refinanced a federal student loan. Only student loans that are still federal student loans will be forgiven.

The likelihood of forgiveness of all federal student loans is low. Among the 25 Democratic candidates for President, only four proposed widespread student loan forgiveness: Senator Sanders, Senator Warren, Wayne Messam and Joe Biden. So, a Democratic President would not only need to convince Republicans of the need for loan forgiveness, but also many Democrats.

The Heroes Act includes a proposal to forgive up to $10,000 in federal student loan debt and up to $10,000 in private student loan debt, per borrower. The original proposal was scaled back to provide loan forgiveness only for economically-distressed borrowers. The Heroes Act has passed the U.S. House of Representatives, but has stalled in the U.S. Senate. Loan forgiveness is unlikely to be included in the final version of the legislation because it is expensive and unrelated to reopening the country.

Is loan forgiveness only available for public sector employees?

Public service loan forgiveness is available for borrowers who work full time for the federal, state, county or local government or for a non-profit 501(c)(3) employer. Borrowers who work in public interest law may work for a non-profit organization that is not necessarily a 501(c)(3) organization. 

Members of Congress and political appointees are not eligible. Employment must be direct with the government agency; employees who work for a government contractor are not eligible.

Most loan forgiveness programs provided by the federal government require the borrower to work in a public sector job. The main exceptions are the loan forgiveness after 20 or 25-years of payments in an income-driven repayment plan and employer-paid student loan repayment assistance programs (LRAP).

Questions about the Payment Pause and Interest Waiver

For any non-federally held loans (which do not currently qualify for 0% interest rate until 9/30/2020 due to the CARES Act), should a borrow consider moving those loans into a Federal Consolidation which is now in the Direct Loan Program?

Commercially-held federal student loans are not eligible for the payment pause and interest waiver. This includes loans in the Federal Family Education Loan Program (FFELP) that were not transferred to the U.S. Department of Education through the Ensuring Continued Access to Student Loans Act (ECASLA).

However, borrowers can make FFELP loans eligible for the payment pause and interest waiver by consolidating them into a Federal Direct Consolidation Loan. Since it can take 30-45 days to consolidate federal student loans, borrowers should do so immediately if they wish to take advantage of the payment pause and interest waiver.

There are a few disadvantages to consolidation. 

  • If the borrower has been in a deferment or forbearance, consolidation capitalizes the accrued but unpaid interest, increasing the amount of debt. 
  • If the borrower is in the income-based repayment plan, consolidation may reset the clock on the 25-year loan forgiveness.
  • Any discounts provided by the FFELP lender will be lost when the loans are consolidated. 

Why did the Cares Act only reduce interest rates for ED loans and not FFEL loans?

FFEL loans and private student loans are held by private lenders. Offering a payment pause and interest waiver on these loans would have required payments from the federal government to the private lenders. This is more complicated. 

The House version of the CARES Act included a payment pause and interest waiver for all student loans, including loans held by the U.S. Department of Education and private lenders, as well as private student loans. Congress decided to pass the Senate version of the legislation, which provided a payment pause and interest waiver only for federal loans held by the U.S. Department of Education.

The Heroes Act also includes a payment pause and interest waiver for all student loans. The Heroes Act has passed the House but is stalled in the Senate. 

The CARES Act has put a hold on two out of the three loans that I have. Thankfully I am still working full time as a frontline healthcare worker. Even with the pause on the two student loans, I have still been making my monthly payments to take advantage of the 0% interest rate and to work on bringing the principal down. However, I am thinking of allocating the monthly payments for the two student loans that are paused and combine those payments to collectively pay my third loan that currently is not on a “pause”. What is the best strategy?

The best strategy is to use the paused payments to pay the loan with the highest interest rate. This might be the loan which isn’t paused. Or, it might not be a student loan. It could be credit card debt, for example.

A good place to start:

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