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Is student loan refinancing right for me?

Posted on April 26, 2018

If you’ve exhausted federal loan forgiveness and other repayment options available to help you manage your student loan debt and are still struggling to make your monthly payments, you might be thinking about refinancing as a possible solution. But what are the risks of refinancing, and in what circumstances is it a viable option?

If you’re a new educator with student loan debt, the word “refinancing” might evoke some hope. Let’s take the word’s face value with a grain of salt, however, and uncover the truth about refinancing, its risks and when it might be right for you.

First of all, what does it mean to refinance a loan? To put it simply, refinancing means you are moving or re-negotiating your debt for a repayment program that is more favorable. If you find that the terms (such as the interest rate or repayment plan) of your loan are not feasible for you, you can take out another loan to repay that debt. You would accept the terms of the second loan, which would assumedly be more favorable than your previous loan.

However, there are some things to be aware of when refinancing. If you’ve been poking around online wondering if you should refinance your loan, you are probably going to come across companies offering refinancing assistance for fees. You should never pay to refinance a loan. According to the Department of Education, you should avoid companies that advertise to refinance for you for small fees.

If you have a government loan, it’s also helpful to keep in mind that you would become ineligible for federal and public loan forgiveness programs after refinancing your loan through a private creditor. You should also know that most private refinancing options don’t come with the same protections that federal loans do, such as discharging your debt in the event of death, disability and, in extreme cases, even bankruptcy.

So when may refinancing with a private loan be appropriate? If you only have private loans, you are already ineligible for federal and public loan forgiveness programs. With a good credit rating, refinancing a loan could lower your interest rate, reduce your number of loan servicers and give you more options for repayment periods. However, keep in mind that when you extend your repayment period you may pay more in interest over time.

You don’t have to act alone; these programs can be complicated. Talk with a trusted professional to find out if refinancing is right for you.

AM-C04288 (Mar. 18)

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