You are no longer in college. That's great news! But you left before you graduated and without a degree, which is much less exciting news. To make matters worse, your student loans have gone into repayment, which is what typically happens when borrowers aren't enrolled in school at least part-time.
Some loans come with a grace period of up to six months, which means you'll have six months after you leave school before that first payment is due. But for others, the payments kick in immediately. Either way, getting that first bill in the mail — or series of bills if you have more than one loan — can be unsettling. And whether you have one loan or several, the idea of refinancing may sound attractive if it helps get those payments down.
But you didn't graduate, so you're not sure refinancing is even a possibility. Can you refinance your student loans even though you don't have a degree? The short answer is yes.
You have to be out of school in order to refinance, and it is an option even if you have not earned a degree, according to Barry S. Coleman, vice president, Counseling and Education Programs, National Foundation for Credit Counseling (NFCC).
First of all, you can only refinance private student loans. If you have any federal student loans, the correct term is actually consolidate. The U.S. Department of Education does not refinance federal student loans.
However, a private lender (like a bank) might be willing to refinance your loans, whether they're private or federal. That does mean, however, any federal loans you have would become private loans, and that's not always a good idea.
Here are a few options for refinancing both private and federal loans:
- If you have multiple federal loans, you can either consolidate them with the federal government into one loan or refinance them with a private lender.
- If you have all private loans, you can only refinance them with a private lender.
- If your loans are a combination of federal and private loans, you can consolidate the federal loans and refinance the private loans. Or you can refinance all the loans together with a private lender. The one thing you cannot do is move your private loans to federal loans or lump them into a federal student loan consolidation.
OK. Got it. So what if you have bad credit? What are your options then? Again, it depends on the type of loans you have. Federal student loans are offered to students based on need and cost of education, so credit scores do not come into play if you want to consolidate them with the Department of Education. If your parent took out education loans from the federal government — called PLUS loans — those do look at adverse credit history.
However, private lenders treat student loans just like other loans they offer, and credit score is important in determining eligibility and interest rate. You may have a difficult time refinancing your private loans — or even turning federal loans into private loans — if you have bad credit. A co-signer with a good credit score may be able to help in this case.
Before you even consider refinancing any student loans, determine what the financial benefits are, especially if you are grouping federal loans in the refi. Once you modify any federal loans to private, you cannot restore them back to federal. That means you lose any protections offered by the government, such as deferment, forbearance or access to special repayment plans.
However, if you know you can repay the balance in the amount of time required by the private lender, a refinance may work in your favor. If you have excellent credit, your interest rate could be lower. Compare lenders and offers, just like you would for any other loan.
If you want to refinance or consolidate without a degree, consider whether you want to return to school later. This might affect your decision too.
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