manage your loan refinancing stress free.
manage your loan refinancing stress free.
Should I refinance federal student loans?
There is about 2 trillion dollars in unpaid student loan debt in the USA. This number continues to rise. And it’s a problem. Some of these borrowers are looking to refinance to save money. But is this the right move?
The decision comes down to what you need as a borrower. Federal loans offer borrower benefits and protections that you won’t find with private loans. However, you can save money and lower your payments with some private refinancing options due to lower interest rates.
What do you give up with refinancing federal loans?
If you paid for school by filing FASFA and taking out a federal loan, then you are entitled to repayment benefits. If you refinance these loans you’ll lose out on many, if not all of these benefits. You’ll lose three main federal loan benefits.
Income-driven Repayment
Income-driven repayment plans mean that the amount you pay each month is determined by your earnings. This is important if you’re struggling to make your monthly loan payment. They protect you if you lose your job or can’t work.
Federal income driven repayment plans include the Income-Based Repayment (IBR) Plan and the Pay As You Earn (PAYE) Plan. These plans let you extend your repayment term and limit your monthly payment to less than 15% of your discretionary income. You can find more on these plans here.
Student Loan Forgiveness
There are several federal and state programs that may forgive a portion of your debt when you work in a certain role. These are roles which have a public benefit like working as a teacher, social worker, or nonprofit employee. These programs include…
- Public Service Loan Forgiveness (PSLF). Certain non-profit employees and government agency employees are sometimes eligible for forgiveness after making 120 qualifying monthly payments.
- Teacher Loan Forgiveness Program. Teachers working in low income school districts may be forgiven up to $17,500 in loan debt.
- Income-Driven Repayment. Your remaining loan balance is often forgiven after completing 20 to 25 years on an income-driven repayment plan.
For more information you can see the forgiveness programs here.
Deferment and forbearance
Deferment and forbearance can help if you can’t make your payments for a short term reason like job loss, medical issue, etc. Deferment and forbearance are ways that you can temporarily pause your payments.
Benefits of refinancing federal student loans
If you’re okay with giving up the benefits discussed above, there are a some good reasons to consider refinancing federal student loans.
- Lower Rates. If you have a good credit score or it’s better now than it was when you took out your loans then you can probably lock in a lower interest rate.
- Lower Payments. When you refinance your loans, you may have the option to extend your repayment term. That can lower your monthly payment. Note that could also make it so that you have to pay more overall. This depends on the rate you get.
- One monthly payment. When you refinance you can take multiple loans (both federal and private) and refinance with one loan. That’s called consolidation. This makes things easier to manage.
- Cosigner release. If you have a cosigner on your student loans – most federal loans require that – you can release them when you refinance. If you have good credit, you can keep the loans in your name only.
How to refinance
It’s not as complicated as it sounds.
- Step 1: Review your credit score and other eligibility requirements. You usually need at least a 680 credit score or a cosigner.
- Step 2: Compare lenders to find the best rate and terms. Most lenders let you get a quote with a soft credit pull, so it won’t hurt your credit score.
- Step 3: Gather required documents like pay stubs, tax documents, IDs and loan info.
- Step 4: Once you’ve found a lender, submit your application and wait for approval. Make sure you keep making payments on your current loan until everything is complete.
