Well, refinancing can be a major relief from the previous burdened loans. However, this financial improvement comes along with some unfavorable sides. When you refinance federal student loans from a private lender, you lose the student loan protection.
The student loan refinancing companies can refinance both private and federal loans, but borrowers raise a severe question: Should I refinance my federal student loan?
When you refinance federal student loans, you lose the benefits like loan forgiveness and income-driven repayment plans. So, before refinancing it make sure to analyze the risk or reward you will get from it.
Students loans from which you can benefit by refinancing are Grad PLUS and parent PLUS loans. These are at the higher interest rate ranging 6% to 7% and depend on the year you obtain them.
To help in refinancing federal student loan, the refinancing companies allows you before filling up the application form, to check the prospective rates. By checking your interest will lead to soft credit pull and, it won’t affect your credit score. This renders you to shop for the best interest rate and calculate the saving amount.
The federal government has made many income-driven repayment methods to lower the monthly payment. This makes the payment easier for the borrowers of federal student loan. There are programs for federal student loans like Income-based repayment (IBR), Income-contingent repayment (ICR), revised pay as you earn (REPAYE) and Pay as you earn (PAYE).
Some of these plans are only available to the eligible borrowers and others are available to all the federal student loan borrowers. In the Income-driven plan, there are some demerits like paying more interest or need to pay the tax-bill after loan forgiveness. But there are some lifesaver benefits like in case you lose your job, need the lowest payment or experiencing the economic hardships.
Moreover, if you are working as a teacher, lawyer or doctor, then you come under the not- for- profit employer category. This can make you eligible for the loan forgiveness after you have made the regular payment over a period of time.
Choosing to refinance federal student loans, you will lose all the above-mentioned benefits.
If you are confident to repay your loan within the given repayment term and, you are looking to increase your saving, and also you have healthy income with good credit score, then to refinancing the federal student loan can be the best option for you.
Look at the following points before you refinance federal student loan
- Repayment time, to know how long you will be paying your loans.
- The interest rate.
- Monthly payment.
Generally, for federal student loans, you get the time period of 10 to 30 years to repay. Refinancing companies offer the repayment time period of 5 to 20 years. Additionally, the federal loans are fixed-rate loans and ensure that the fixed rate is maintained throughout the year. On the other hand, when you choose to refinance student loans from private lenders offer both fixed and variable interest rates. These rates depend on the market condition; hence, it may help you or bother you.
Learn more about refinancing loans.