There is more to student loan refinance than just lowering your monthly payments. Refinancing a current student loan means that you’ll have to sign with a private lender. If you take out a private loan, you’ll no longer have the advantages that go with federal student loans.
Here’s what you’ll give up when you go through a student loan refinance and pay off your federal student loans with a private loan:
- Loan forgiveness: The Teacher Loan Forgiveness and Public Service Loan Forgiveness programs allow you to have your student loan debt forgiven after you make a set number of on-time payments. With a private loan, you won’t have this option. (Read more)
- Forbearance and deferment: If you experience financial hardship, you can put off making monthly federal student loan payments through forbearance or deferment. Depending on the lender, your private student loan may not offer these two benefits.
- Income-driven repayment (IDR): When you refinance student loans, you won’t be able to enroll in IDR plans that allow you to make a monthly payment that’s equivalent to a portion of your discretionary income. If you complete the student loan refinance process and pay off your outstanding student loans with a single private loan, you won’t be able to reverse the process.
Given the above, some people may choose not to refinance their federal student loans. Nevertheless, refinancing a student loan can be beneficial in many ways:
- It helps you save money on interest and monthly payments
- It allows for more flexible repayment options
- It allows you to convert your federal loans into private ones, which may result in lower interest rates
- It allows you to consolidate all your existing loans into one, which may be more convenient
- It can help you avoid defaulting on your loans
Summing it up
A federal student loan has some benefits over a private loan. Nonetheless, there are some other benefits that can be taken advantage of when refinancing with a private lender. Whichever your choice may be, it is always important to conduct research and see which lender fits your needs best. In any case, before making a financial decision that may have a long lasting impact on your life, it is important to weigh your options and see which benefits you the most.