Is refinancing your federal student loan in your mind, then follow me on this article and get enlightened. Refinancing your student loans could save you money, especially if you qualify for a lower interest rate.
However, while there are few downsides to refinancing private loans, refinancing federal student loans isn’t always the best choice; by doing so, you’ll give up valuable protections, like access to income-driven repayment plans.
What’s more, federal student loans currently have no interest charges and no required payments through Sept. 30, 2021, due to the coronavirus pandemic, so in most cases, it’s best to avoid refinancing now.
Federal Student Loan Refinancing
It is possible to refinance federal student loans, but doing so means switching from a federal student loan to a private student loan. Because refinancing is not offered by the federal government, you’ll need to research lenders on your own including banks, credit unions, and online lenders.
These lenders may caution you against refinancing federal loans since you’ll lose a number of federal benefits in doing so, but generally private lenders will refinance any type of student loan. You can even refinance federal loans and private loans together.
Which is a Downside of Refinancing out of Federal Students Loans?
The biggest drawback of refinancing your student loans is giving up the protections that you otherwise receive with federal loans, such as income-driven repayment plans. Not every borrower is eligible for refinancing: To get approved, you’ll likely need good credit and a low debt-to-income (DTI) ratio.
Student loan refinancing rates are low right now. But you probably shouldn’t take advantage of them if you have federal student loans.
Is it Smart to Consolidate Federal Student Loans?
Consolidation is similar to refinancing a loan. You can consolidate all, just some, or even just one of your student loans. Consolidating federal student loans may be a good strategy to lower monthly payments or to get out of default, but it is not always a good idea. Interest rates for consolidation loans are fixed.
Will my Student Loans be forgiven if I Refinanced
If you refinance your federal student loans into private ones, you’ll no longer be eligible for any future loan relief by the federal government. Refinancing eliminates other forgiveness options.
Is it Smart to Refinance Student Loans Right Now?
Refinancing student loans can save you money under the right circumstances. It could be helpful to score a lower interest rate, to change from a variable interest rate to a fixed rate, to consolidate your loans to a single monthly payment, or to release a co-signer.
Should You Refinance Your Federal Student Loans?
With federal student loans, you should never refinance without first understanding the benefits you’ll give up by doing so. Perhaps the most important benefits you’ll forfeit if you refinance federal student loans with a private lender are income-driven repayment plans and Public Service Loan Forgiveness (PSLF).
These plans could drastically reduce your monthly payments in tight financial times, and both forgive any remaining loan balances after a designated repayment period of 10 years for PSLF and 20 to 25 years for most income-driven repayment plans. You can get more details on refinancing your federal students’ loans here.