Can I undo Student Loan Consolidation and Refinancing?- clear your doubts

Read and clear your doubts on undoing consolidation and refinancing. Explore the ways of rectifying your mistakes on consolidation and refinancing. Learn some alternatives for such situations.

Updated by Kanishkar P on 25th February 2020

If you are searching for the answer to your question on Undoing student loan consolidation and refinancing then here is the answer: 

Once if you have consolidated or refinanced your student loans then there is no way to go back. But if you feel that student loan consolidation or refinancing was a bad move that you made, it is not actually true. Even if it did not go very well with consolidation and refinancing, and also you don’t have any ways to undo it, there are ways to fix a few mistakes. Before that, you must know the point at which it becomes impossible to undo or reverse student loan consolidation. 

Table of Contents

Consolidation and its non-revertability

Direct student loan consolidation is a process where you can combine (consolidate) your multiple federal student loans into a single loan to simplify it.

It will provide you with a single new loan for all your old ones, where you will be paying a single payment for all of your loans. The interest of the student loan consolidation rate is fixed which means the new interest rate will be made by the average of all the interest from your loans.

It will minimize your risk and still, you will be holding the benefits of federal loans. Student loan consolidation will help you get beneficial federal loan program perks like additional loan repayment plans and forgiveness programs. 

In many cases, borrowers tend to refinance their multiple federal student loans as one single loan through a private lender. In order to achieve this, they consolidate their multiple federal student loans into a single student loan. The borrowers usually check the interest rates offered by different student loan lenders before going for refinancing. Check interest rates does not commit a borrower to any lender or any process. The consolidation process is not initiated by the lender, it is the borrower who requests for the student loan consolidation by formally applying for it. Based on the borrower’s requests the federal student loans are consolidated.

Before refinancing, the new lender has to approve the loan for the borrower. To get approved by a new refinancing lender the borrower has to submit all the information about the loans that are to be refinanced. During this stage, if the borrower feels that it is not right to refinance then he can call back the refinancing process. 

Even if you miss out on this chance, you have ways to rectify your mistake. Once the new lender or the Education department has all the proper information about your loans they will send a final contract for the loan that the borrower is supposed to sign. And on signing the contract the borrower agrees to refinance the old student loans with the new lender. This triggers the new lender to pay off your old loans. Once the transaction between the new lender and the old lender has started the borrower cannot think of getting back from the process. The borrower can cancel it before the transaction being started between the old and new lenders. 

But the good news is that even if you don’t have any ways of reversing the consolidation and refinancing of student loans there are ways to address loan concerns.

Going back in Refinancing

Student loan refinancing is a non-revertable process. Once it is done it cannot be undone. But there are ways to correct the mistakes. 

For that, you must be aware of student loan refinancing basics and features.

One good thing in refinancing is that there is no limit on the number of time you refinance your loans.

For example, suppose while refinancing you chose a particular repayment plan and then realize that you should have chosen a different plan that would have been more convenient. In this case, you can either change the repayment plan if your lender allows for it, or you can again refinance your loans through another lender who can offer the repayment plans that you opt for with better interest rates and benefits. You can check out all the best companies to refinance your student loans before choosing one.

Why can’t they be reversed?

On refinancing a federal student loan it turns into a private student loan. You may also think that if you can transfer private student loans again to federal. But it is nearly impossible. On refinancing federal student loans to a private loan you lose all the benefits that you own on your federal student loans. And you won’t be able to get some good programs and plans such as income-driven repayment plans and all the federal student loan forgiveness programs.   

On consolidating multiple federal student loans into single federal student loan you may miss out on the benefits that you hold on a few of the old loans. The old loans are combined and made as a new single loan with new policies and terms on it. This may be beneficial to some borrowers to manage and pay off their loans but it might end up as a mistake for other borrowers. So, understand the terms and conditions to be laid on taking up student loan consolidation. 

Concluding thoughts

We have clearly shown you that there are no ways to undo or reverse a student loan consolidation or refinance. Although there are no ways to undo them we have shown you the steps during which you can make changes and can effectively escape from making mistakes. You also have the advantage of another refinancing option. We can’t assure that a successful second refinancing can nullify all your mistakes or can fix the errors. But choosing the correct refinancing option may help you a lot. 

But before all this, you must be wise and try to understand all the terminologies and features associated with the best student loans in order to avoid these kinds of problems in the future.