If you’re having trouble paying your student loans, you might be looking for any options that provide relief, such as refinancing or transferring your loans to another lender.
“Borrowers usually pursue these options because they feel their interest rates are too high, they’re making payments to too many servicers, or they have had a poor customer experience with their current servicer,” says LeAndra Ross, a regional director at the AccessLex Center for Education and Financial Capability, a financial education resource provider.
However, you can’t simply ask a new lender to take on your debt with the same terms. To transfer your student loan, you will need to take out a new one to effectively shift the balance to a new lender. You can consider refinancing or consolidating, as well as a few other options for handling the debt.
Options for Federal Student Loan Borrowers
With federal student loans, you have two main options for moving your debt. You can refinance the loan with a private lender or work with your loan servicer to apply for a direct consolidation loan.
Take out a direct consolidation loan. This option lets you roll multiple federal student loans into one new loan with a fixed interest rate and a single monthly payment. You’ll be able to choose your new loan servicer during the consolidation process, which is a lesser-known but valuable perk.
Because the Department of Education will still be your lender, you can continue to access income-driven repayment plans, deferment and forbearance protections, and loan forgiveness benefits.
You’ll need to be in repayment for a certain number of months to qualify for loan forgiveness. Until recently, taking out a direct consolidation loan meant resetting the clock on payments that count toward loan forgiveness. But now, borrowers may receive credit for any months they made repayments toward federal student loans and during special forbearance and deferment periods, even after consolidation.
The Department of Education is making a one-time adjustment to accounts during summer 2023. If you’re thinking about consolidating federal student loans and want credit for your loan forgiveness payments, you will need to consolidate before that adjustment. Talk with your loan servicer about the deadline and how to qualify.
Keep in mind: Consolidating will still have some drawbacks. “Borrowers can see their new interest rate slightly rise,” Ross says. Additionally, “Extending the years to payoff can result in more interest accrual, thereby growing the loan balance over time.”
You may also lose certain perks, such as interest rate discounts, principal rebates and some loan cancellation benefits.
Refinance to a private student loan. When you refinance student loans, you will take out a new loan and move all of your old loan debt – federal, private or both – into one new loan with a new lender. That private lender could be a bank, credit union or online lender. Refinancing could be a good option if you’ll pay much less interest over the life of the new loan or you can access flexible terms and a better loan servicer.
The biggest drawback is that “flexible repayment plans and life-event protections are limited on privately refinanced loans,” Ross says. “If the borrower’s income is unstable, there may not be much recourse if they’re unable to make payments.”
Borrowers who are interested in federal student loan forgiveness programs “should not refinance their federal loans into a privately refinanced loan,” Ross says. “Doing so will render those once-eligible loans ineligible for any federal student loan forgiveness.”
Options for Private Student Loan Borrowers
If you have private student loans, the two major options for transferring your debt are using a credit card or refinancing to a new loan.
“Using a credit card to pay off another debt — even with a 0% introductory rate — is a form of debt shuffling,” Ross cautions.
This may only make sense if you qualify for a credit card that offers a 0% introductory interest rate and you can pay off the balance within that time frame. The longest introductory periods are typically 15 to 21 months.
You’ll need to look for a card issuer that allows you to transfer student loan debt, ensure the credit card offers a high enough credit limit to accommodate your loan, and check for any transfer fees.
Also, make sure you understand the circumstances in which the card issuer can revoke the introductory rate. Otherwise, you could end up unexpectedly paying interest. Divide your loan balance by the number of months you would need to pay it off before interest applies. Then, decide if you can make that work and if it’s worth the risks.
You’ll also need to consider other financial effects, such as how shifting from an installment loan to revolving debt may influence your credit.
“Even if you have a 0% interest rate, the high utilization of your credit limit could bring down your credit score,” says Spencer Betts, a Certified Financial Planner Board of Standards ambassador.
Refinance the private student loan. Personal finance experts usually caution against refinancing a federal student loan into a private loan. But refinancing has far fewer consequences if you already have a private student loan.
“This is a good idea when you can save on interest or want to adjust the (loan term),” Betts says. “Additionally, if you have a variable rate in a rising interest rate environment or a high fixed rate in a low-interest environment, refinancing can be a good idea.”
But before taking on a loan with new terms, read the contract carefully, Ross says.
What to Do After the Student Loan Transfer Is Complete
Once you transfer your loans to the new lender, make sure the details are accurately documented.
First, ask your old lender for a letter stating that the loan is paid off. Keep physical and digital versions of this letter.
Next, review your credit report from each of the three main credit bureaus. They are offering free weekly access to consumers through the end of 2023.
Your old loans should appear on your credit reports with a note saying the loans were either transferred or paid in full and closed. The new loan should appear on your credit reports with the correct balance.
Alternatives to Getting a New Student Loan
You can make meaningful changes to your student loan without going through the process of getting a new one. Here are few examples:
Apply for Public Service Loan Forgiveness. Federal student loan borrowers who qualify for the Public Service Loan Forgiveness program could get a new loan servicer and eventually shed some of their debt. If your application is approved, your federal student loans will be moved to MOHELA, which administers all PSLF accounts.
PSLF allows eligible federal student loans to be forgiven after 120 qualifying payments for borrowers working in public service. Borrowers enter this program strictly to work toward loan forgiveness and not to change loan servicers. But if MOHELA is an improvement over your current loan servicer, then it’s an added perk.
Pay off your loans early. Sometimes the best way to deal with a vexing student loan is to pay it off early, effectively getting rid of the debt and your loan servicer. This may be a good option for those who are stuck with high interest rates but have a low loan balance and can come up with the extra money for a higher monthly payment.
If you have enough money to start paying down your student loans, you’ll want to make the minimum payments on all monthly debts and then put a larger amount toward one balance.
“We generally recommend that you start with the loan with the highest interest rate first,” Betts says.
Focusing on your most expensive loans allows you to pay less interest over time.
A different method involves paying down your smallest loan balance first, which may help keep you motivated. A nonprofit credit counseling agency can help you create a budget and a plan for reaching your debt payoff goals.
Another option involves getting help from your employer. Through 2025, employers can provide up to $5,250 toward student loan repayments annually as a tax-free benefit. Goodly, a service that helps employers set up student loan repayments, created a list of employers that offer the benefit.
Work with the lender. If refinancing, consolidating, transferring a credit card balance or paying off a loan early isn’t right for you, then contact your loan servicer to ask about other options.
Federal loans come with many borrower protections and repayment plans, but your options with private loans will depend on the lender. You may be able to adjust your payment plan or due date, or enter a hardship program.