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Student Loans Student Loan Repayment

How to Transfer Student Loans to Another Lender

If you’re unhappy with your current loan servicer or are interested in getting better terms, you may wonder whether you can transfer student loans to another lender. You can—but how you go about it will depend on whether you have federal or private student loans. 

Transferring student loans to another lender could help you unlock better terms or streamline your monthly payments. However, you should consider the potential downsides before making a move. We’ll cover the pros and cons to help you decide whether it makes sense for you.

In this guide:

Can I transfer my student loans to another lender?

Yes, it’s possible to transfer your student loans to another lender. You may choose to transfer one of your loans or all of them, depending on your reasons for making the switch. 

You can transfer student loans to another lender one of two ways:

  • Refinancing private student loans
  • Combining federal loans with a Direct Consolidation loan

Refinancing student loans works by allowing you to take out a new loan and use the proceeds to pay off your debt. Once the old loans are paid off, you repay the refinance loan according to the lender’s terms. Refinancing might allow you to get a different interest rate, loan term, or monthly payment. 

Consolidation allows you to combine your federal student loans into a single loan. You then have one monthly payment to make to your servicer each month. Consolidating federal loans may result in a change of loan servicer. 

That’s a simple explanation of student loan refinancing vs. consolidation. Next up, we’ll take a closer look at how both work. 


Tip

If you’re unsure whether you have federal or private loans, you can check your most recent loan statement for a description of your loans or reach out to your loan servicer to ask. 


How to transfer private student loans to another lender

Refinancing any loan, including student loans, means replacing one or more loans with a new one. The process might sound intimidating, but refinancing student loans is easier than you might think. 

Here’s a rundown of how the process typically works, step by step. 

  • Step 1: Identify which loans you want to refinance. This might be some or all of of your loans. When you apply for a refinance loan, the lender will ask for details about your loans, including the amount owed. 
  • Step 2: Compare student loan refinancing options. You might be able to refinance your loans with your current lender, but it’s worth comparing refinance rates elsewhere. Getting rate quotes from at least three lenders is a smart way to estimate your potential interest savings. 
  • Step 3: Choose a lender, and complete a refinance application. If you’ve selected a lender, the next step is filling out the application. You’ll need to tell the lender about your loans and your financial situation, including your employment status, income, and other debts. 
  • Step 4: Review the loan offer. Once approved for student loan refinancing, you’ll have a chance to review the loan offer before accepting. If you’re happy with it, you can finalize the paperwork and sign off on the loan agreement. 
  • Step 5: Pay off your loans. Your new lender should pay off your old loans for you, which can take a couple of weeks. You’ll want to continue making payments to the old loans as scheduled until the payoff is confirmed, at which point you can switch over to paying the new lender. 

So why would you want to transfer student loans to another lender? It could be because you’re just not happy with the one you have, but a better reason is to lower your interest to reduce the total cost of your loans. 

Let’s say you owe $50,000 with a 10% interest rate and 10 years left on your loan, but you can refinance at a 5% interest rate: 

AspectBefore refinancingAfter refinancingSavings or benefits
Interest rate10%5%Lower interest rate
Term10 years10 yearsNo change
Total interest$29,290.44$13,639.31💰 Save $15,651.13 in interest
Monthly payment$660.75$530.33⬇️💲 Reduce by $130.42

You could use that extra $130 to invest, save for a down payment, or pay down other loans.

Refinancing may also help you pay off your student loan ahead of schedule while paying less interest. For example, let’s say you decide to add the extra $130 to your student loan payments

In this case, you would pay off your loans in about seven years and eight months while saving an additional $10,296.97 in total interest.

Pros of refinancing private student loans

As the previous example illustrates, a significant benefit of student loan refinancing is the money you can save. Even lowering your interest rate by a quarter of a percentage point could make a difference in how much you pay for your loans over time. 

If you’re interested in reducing interest rates or simplifying monthly payments, refinancing could help you do it. However, it’s not always ideal. Whether it makes sense for you can depend on where you are in your loan repayment journey and what your goals are. 

Pros

  • You may end up with a lower monthly payment, which could build some breathing room into your budget.

  • If you choose a shorter repayment term, you’ll be able to get out of student loan debt faster.

  • Having just one loan payment to make each month versus several can make it easier to keep track of your finances.

  • Potential savings on interest over the long term.

Cons

  • A longer repayment term could lower your monthly payment, but it could mean paying more in total interest over the life of the loan. 

  • Lenders often require good credit for student loan refinancing, which might make it necessary to have a cosigner. 

  • If you use a cosigner to refinance student loans, they may not be released from the loan until it’s paid in full. 

Here’s an example of how refinancing private student loans could cost you money

Let’s say you owe $50,000 at 10% APR and have 10 years left in your loan term but decide to refinance to a 20-year term at 6%

AspectOriginal loanRefinanced loanChange
Interest rate10%6%⬇️ Reduced by 4%
Loan term10 years20 years⏳ Extended by 10 years
Monthly payment$660.75$358.22💰 Decreased by $302.53
Total interest$29,290.44$35,972.80⬆️💲 Increase of $6,682.36

As you can see, your monthly payments would be lower, but you’d still pay more by increasing your loan term.

How to qualify for a refinance

Qualifying for student loan refinancing depends on the lender. All lenders have unique criteria for approval. 

A lender may require you to have the following:

  • A credit score of 650 or higher
  • Between $1,000 and $500,000 in student loan debt
  • At least two years of employment history, or proof that you have sufficient income to pay your loans
  • A low debt-to-income ratio, which measures how much of your income goes to debt repayment each month
  • A cosigner if you don’t meet minimum credit score requirements

A cosigner signs the loans with you, and the lender can hold them responsible for the debt if you fail to pay. Having a cosigner could work in your favor if you can leverage their good credit for a lower interest rate. However, defaulting on cosigned student loans could damage their finances and yours, as well as your relationship.  


Tip

Some lenders might consider other factors to determine your creditworthiness. For example, a lender might look at your area of study, career path, and projected future earnings to decide whether to approve you for a refinance loan. 


How to transfer federal student loans to another lender or servicer

When you transfer student loans, it’s important to know the difference between your lender and loan servicer. With federal loans, your lender is the government. This is who gives you the money to pay for your education. Your loan servicer, meanwhile, is the company assigned to collect payments for those loans. 

If you’re consolidating federal student loans, you might get a new loan servicer, but your lender would be the same. 

If you’re refinancing federal loans, which you can do, that would involve a move to a new private lender. 

If you want to keep your federal student loans

If you want to keep your federal student loans as they are, you have two main options. Which one makes the most sense can depend on whether you plan to seek loan forgiveness at any point. 

Option 1: Consolidate with a new loan servicer

First, you can consolidate your student loans and choose a new student loan servicer. Consolidating multiple loans into one can simplify the repayment process by reducing the number of payments you need to make. You can do this with a Direct Consolidation Loan.

However, make sure you’re not giving up any benefits by consolidating. For example, if you’re working toward Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR) loan forgiveness, you could lose credit for all your previous payments if you consolidate. 

Also, if you have Perkins loans and consolidate, you won’t be eligible for Perkins loan cancellation. You can see what type of federal loans you have by logging into your account on the federal Student Aid website

Option 2: Try for loan forgiveness

Another way to change loan servicers is to work toward PSLF. All PSLF applications are managed by Mohela as of December 2022. So if Mohela isn’t your loan servicer now, you might be able to make a switch this way by seeking forgiveness for your loans. 


Tip

This option is only available for borrowers who work in an eligible government or nonprofit organization and plan to work there for 10 years while making payments. You’ll also need to be enrolled in an income-driven repayment plan to qualify.


If you want to switch to a private lender

After extending federal student loan forbearance multiple times, the federal government passed a law in June 2023 barring further payment pauses. A 12-month on-ramping period to ease borrowers back into repayment began on October 1, 2023, and will run through September 2024. 

If you’re interested in moving to a private lender as payments resume, you have the option to refinance federal student loans. However, there is a caveat: You’ll lose access to all federal benefits and protections, and once your loans are refinanced, you can’t undo it. 

In case you’re unsure what that means, here are the main benefits you would forgo by refinancing federal student loans into private student loans: 

  • IDR plans: IDR plans base your monthly payment on your income and family size and allow for forgiveness after 20 or 25 years. Private lenders do not offer income-based repayment options. 
  • Longer deferment and forbearance programs: Federal loans have longer deferment and forbearance programs than private loans. If you can’t afford your payments even on an IDR plan, you can apply for one of these yearlong programs. You can renew the pause for three years in total. Private lenders will sometimes offer one year of deferment, but some offer as little as six months.
  • Loan forgiveness programs: Federal loans come with loan forgiveness options including PSLF and IDR loan forgiveness. If you refinance, you forfeit access to all federal loan forgiveness programs.

If you’re considering refinancing, it’s wise to consider what you might gain versus what you’d be giving up. Saving on interest is excellent, but you don’t want to regret losing loan forgiveness or income-based repayment options later if you decide you need them. 

If you want to transfer Parent PLUS loans

No federal program or option allows transfers of Parent PLUS loans to the child. If you have a Parent PLUS loan you want your child to take over, you have a couple of ways to approach it. 

  • Have your child refinance the loan into their name through a private lender. 
  • Arrange for the child to make payments to you for the loan balance while leaving the loan with your current servicer. 

Your child must qualify for student loan refinancing based on their credit scores and income for the first option to work. If you cosign to complete the refinancing, that won’t release you from your repayment obligation. It would only transfer the loan to a new lender. 

Another option is for the child to give money to the parent for loan repayment. Any individual may gift another individual up to $17,000 in 2023 without needing to file a gift-tax return. However, if your child is a recent grad just starting their career, that might not be feasible. 

What happens after I transfer my student loans?

After you refinance or consolidate your student loans, you’ll make payments to the new loans going forward. Assuming the lender handled the payoff accurately, you shouldn’t owe anything on the old loans. 

Here’s a quick checklist to follow after you transfer student loans to another lender or loan servicer.

  • Note the due date on the new loan, which may be different from the previous ones.
  • Set up automatic payments through your bank to take advantage of rate discounts your lender offers and avoid late payments. 
  • Check your annual credit reports to ensure the old loan is marked “paid off.” 

If you see any errors, dispute them with the credit bureau that’s reporting the information. And be sure to cancel any recurring payments you’ve set up from your bank account to the old loans once the transfer is complete. 

Ready to transfer your loans? Comparing the best student loan refinancing companies is a terrific place to start.