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Consolidation and Refinance Options for Nelnet Federal Student Loans

Borrowers with federal student loans serviced by Nelnet may wish to consolidate or refinance their loans. Both options have major pros and cons.

Written By: Michael P. Lux, Esq.

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Affiliate Disclosure and Integrity Pledge

Temporary Forgiveness Clock Rule: The Department of Education is conducting a one-time update of IDR payment counts. Borrowers who consolidate their federal loans before April 30, 2024, can avoid restarting their progress toward PSLF and IDR forgiveness.

If you have federal student loans serviced by Nelnet and want to consolidate or refinance them, the process can seem a bit overwhelming. This is especially true if you are new to consolidation and unsure of your options.

Nelnet borrowers have two main options for consolidation. Borrowers can refinance their loans with a private lender or consolidate federal loans with the federal government. Both options have significant pros and cons.

Unfortunately, the Nelnet site does a poor job of explaining the many consolidation choices and reasons to consider each route. Today we will look at these options for private loans and for federal loans.

Federal Loan Management with Nelnet

Nelnet is one of the biggest federal loan servicers. If you are unsure if your Nelnet loans are federal loans, you can always visit the National Student Loan Database. There you will find the federal government’s database that shows who services your federal loans. If you see your Nelnet loans on the list, you can be certain they are federal.

There are two approaches to consolidating your federal student loans. Approach one is to consolidate your federal loans with the federal government. Approach two is to refinance your federal loans with a private company. Picking the wrong approach can be a huge mistake, so it is critical you understand your choices.

Consolidating Federal Loans with the Federal Government

Consolidating your federal loans into a federal direct consolidation loan has a couple of advantages. If you are a borrower of certain loans, such as graduate PLUS loans, consolidation can actually turn ineligible loans into loans that are eligible for programs like Public Service Student Loan Forgiveness. If you think this applies to you, have a conversation with your loan servicer as soon as possible.

A smaller advantage of federal direct consolidation is that it puts all of your loans in one place. This prevents you having to deal with multiple federal loan servicers. That being said, consolidation can restart certain loan forgiveness clocks, so it is very important to understand the implications of federal consolidation before making the decision.

One thing to note about federal consolidation is that it doesn’t change your interest rates. When the loans are combined, they generate the weighted average of your interest rates so that your interest payments over the life of the loan are essentially the same.

If you want lower interest rates…

Refinancing Federal Loans with a Private Lender

Going this route is the only way to get lower interest rates on your federal student loans. That being said, this option is definitely not for everyone. By consolidating with a private lender you give up the perks that come with a federal loan. These include income-based repayment plans and public service student loan forgiveness. If you think that there is any chance that you will need these government perks, it is probably best to keep your loans with the federal government.

However, if you don’t think you will ever need the federal programs, now is a great time to be consolidating student loans on the private market. We have found refinance lenders with interest rates of just over 2%. Some of them even offer a bonus to new customers.

This is also one area in which we take issue with Nelnet. Nelnet operates as both a federal student loan servicer and a private refinance lender. Nelnet Bank, the refinance lender, is a fine option, but borrowers should understand that many other options exist. Nelnet customers don’t have to use Nelnet bank to refinance.

Options for Private Student Loans

The Federal Government – If you are thinking about going this route, you are very clever. Turning a private loan into a loan with federal perks would be great, unfortunately it cannot be done. If you have a private loan, there is no way to easily convert it into a federal loan.

Private Lenders – This route is the easiest call. If you have a strong credit score and income, odds are pretty good that you will be able to lower you interest rate though refinancing. This is because you are much less of a credit risk now that you have a degree and job. Interest rates on private loans for borrowers who don’t have a degree or full-time work are usually pretty high, but it isn’t always a sure thing. Common refinance lenders include: SoFi, Laurel Road, and College Ave.

Final Thoughts on Refinance and Consolidation of Nelnet Loans

There are many options for Nelnet student loans. The most important thing is to evaluate all of the potential choices and to pick the one that works best for your personal situation. There really isn’t a one size fits all approach to loan consolidation.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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