Federal student loans offer the best options for repayment and forgiveness. Consequently, converting private student loans into federal student loans is an appealing idea. Unfortunately, there’s no straightforward procedure or mechanism in place to do this.
Borrowers wishing to convert their private student debt into federal will need to get creative.
Why would a borrower want to turn private student loans into federal loans?
Private student loans can be brutal. The terms of a private loan are dictated by the contract signed by the borrower. These terms can vary significantly from one lender to the next, but are usually very rigid. Borrowers who are facing financial difficulties receive little help from private lenders. To make matters worse, late fees and collection costs add up quickly.
Federal student loan repayment, while challenging, generally offers most borrowers a feasible path to eliminating the debt. Federal benefits, like loan forgiveness and payments based upon what you can afford, give hope to borrowers. Even unemployed borrowers have a shot at eventually eliminating their federal student debt.
For the vast majority of borrowers, federal student loans are significantly more beneficial than private loans.
Converting private debt for borrowers still in school
For those borrowers still in school, there are a couple of options to convert private student loans into federal student debt.
It’s common for college students to borrow both federal and private loans during school. Students who are manage their finances carefully may find themselves with leftover student loan money at the end of the semester. Rather than repaying some of the federal loans early or borrowing less in the future, these students could instead focus on paying down their private loans. The goal is to maximize federal borrowing before taking on any additional private debt.
A similar approach applies to employed students. For example, a student working a ton of hours at their summer job could use their earnings to reduce the amount they need to borrow for the next school year. However, a better strategy might be to apply the money to pay down any existing private student loans. This student might have to borrow more federal loans the following year, but they will have less private debt.
This approach can be especially useful for borrowers impacted by strict borrowing limits for students just starting college. Graduate students, who have much higher federal borrowing limits, can transform significant portions of their private loans from undergrad into federal debt.
Transforming private loans into federal loans for borrowers in repayment
Unfortunately, borrowers can’t wave a wand and magically transform their private loans into federal loans. However, borrowers can take small steps that gradually convert private loans into federal loans.
Suppose a borrower can afford to pay $500 per month towards their student debt. Currently, the borrower’s required monthly payments on their federal loans is $300 and $200 for their private loans.
If our hypothetical borrower hasn’t already explored their federal repayment options, it’s likely that this borrower would be eligible to lower their federal payments. Suppose they manage to reduce their required federal payments to $100 per month. They can now allocate $400 per month towards their private loans, even though their total monthly loan payment remains $500. By adjusting the repayment strategy, the borrower essentially converts $200 worth of private debt into federal debt each month.
The strategy here is pretty simple. Paying less towards federal loans frees up more funds to pay down private loans. Each dollar paid towards a private loan rather than a federal loan is a dollar converted.
This move won’t solve a devastating student loan nightmare but, over time, it can make a borrower’s student debt far more manageable.
Next Steps
- Sign up for income-driven repayment on federal loans – The Department of Education’s Loan Simulator is an excellent tool for exploring different monthly payment options.
- Refinance private loans into more manageable terms – Refinancing federal loans into a private loan would probably be a mistake, but refinancing private loans into better private loans can help. There are many lenders to choose from and the strategy to find the best rate is fairly straightforward.
- Current students should max out federal borrowing before getting any private loans – Getting federal loans starts with filling out the FAFSA, though colleges may have additional forms to complete.
Many thanks Michael. This gives me a lot to work with.
I have a UNCNS loan through AES. I was told by an AES rep that I had to convert this loan to a Federal Direct loan if I wanted to pursue loan forgiveness. Is that correct and, if so, how is that done?
First the good news: the UNCNS designation means we are working with a federal loan. This means there is probably a path forward to forgiveness.
However, before jumping into specifics, what forgiveness program were you planning on pursuing?
Thank you for the quick response. As a retired federal employee, I would pursue the PSLF program.
Gotcha, your loan may be classified as an FFEL loan, which would need to be consolidated in order to be eligible for PSLF.
I’d suggest reading this article about FFEL loans, consolidation and PSLF. Hopefully, it covers all the questions you have.
I have FFELPS loans that were with AES and then I consolidated it (during chemotherapy) to a private loan (unknowingly) in January 2022. I never have not paid the loans except during residence when I was in forbearance. Is there any way to get them back to federal to get them paid off?
I wish I had better news for you, but there really isn’t a way to undo the consolidation process. When you refinanced with a private lender, the federal loans were paid in full, and a brand new loan was created.
I had a pell grant and federal student loan. After graduating, I moved my loan to a low interest payment through Sallie Mae, which was later sold to Navient. How can I convert this student loan back to a federal student loan?
If you have a privately-held FFEL federal loan, which it sounds like you might, you can do a federal direct consolidation to convert the debt into a federal direct loan.
However, this move may not be enough to qualify for the one-time forgiveness program.
I was told by someone at the government student loan 800 number that my loans were consolidated into a “commercial” loan but that there is a process to apply to move them back over to the Dept of Ed. Do you have info about that?
It sounds like the loans you are discussing are FFEL loans that are commercially held. These are technically federal loans, but they are not federally held.
This site has many different articles about FFEL loans and the strategy for handling these loans. Feel free to ask if you can’t find the answers you are looking for.
My daughter has a FFLE student loan\privately owned
She is well under income caps
Current balance is approx 7,500.
Since it is private,will Bidens discharge apply?
Can it be consolidated in a federal loan and be discharged?How?
That is a great question. I dug into this issue over the last couple of days and I just published an article on the strategy for FFEL borrowers for Biden Forgiveness.