When You Should Consider Refinancing Student Loans


Under the right circumstances, refinancing student loans can be a good money saver. It might help you get a lower interest rate, getting a fixed rate from a variable interest, consolidating your loans into monthly payments, and letting go of a co-signer. This is a win-win situation in debt management.

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Before you choose to refinance your loan, you need to get the distinction between refinancing and consolidation. When you refinance, you are getting a new loan in place of your old loan, while consolidation means you will be simplifying things by combining your many different loans into one loan.

Types of Loans to Refinance

First, you need to understand that the United States government cannot refinance student loans. It can only consolidate them. You cannot change your federal student loan for another with a lower interest rate or transform a private student loan into a federal one.

If you choose to consolidate a federal student loan via the Department of Education, you might end up paying higher interest rates.

Private student loan refinancing will let you refinance a federal student loan or a private loan—or both combined—to be one private loan. But refinancing is close to impossible for federal student loans.

If you do so, you minimize your chances of getting government assistance programs, most importantly, enrollment in an income-driven repayment plan.

This plan reduces your payment to an amount in line with your discretionary income. It cancels any loan balance left if you have not completed payments for your federal loans by the repayment time elapses.

Lastly, while several private lenders can temporarily lower or stop loan repayments, they avoid default by deferring or forbearing. Such terms do not seem to be appealing compared to federal student loans. 

Suppose you are a teacher or a public service employee seeking loan forgiveness under one government-offered program. In that case, you will not qualify for the benefit anymore if you want to refinance student loans.

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