As interest rates begin to decrease, there may be more discussion surrounding student loan refinancing as a means to reduce your expenses.
“When you refinance federal student loans, the lender you choose pays off your remaining federal debt and issues a new private student loan. It’s a permanent move: You can never turn your private refinance loan back into a federal loan.”
For private loan borrowers who can qualify for a better interest rate, refinancing can lower your student loan payments with minimal risk. However, if you have federal student loans, even if you can secure a lower rate, student loan refinancing may come with a significant opportunity cost. By transferring your debt from the Education Department to a private lender, you will permanently lose federal borrower protections.
If you’re considering student loan refinancing, it’s important to understand the implications based on your specific loan type and explore alternative methods to reduce your payments and receive student debt relief.
“For individuals who are several years away from retirement, earn a high income, and have a relatively low loan balance compared to their income, refinancing can be a viable option. This is because they may end up paying off the loan before reaching the forgiveness threshold through income-driven repayment plans,” Tate explains.
Explore alternative student loan relief solutions
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Flexible repayment options. Income-driven repayment plans set a ceiling on your monthly federal student loan payments based on your income and family size, potentially reducing them to $0. These plans are generally not applicable to private loans.
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SAVE lawsuit forbearance. Due to SAVE lawsuits, borrowers enrolled in this federal loan repayment plan are granted an interest-free payment postponement until at least April. Those not enrolled in SAVE can still benefit from this forbearance by enrolling in the plan promptly.
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Deferment or forbearance. Temporarily halt your federal student loan payments by requesting a deferment or forbearance from your servicer. Some private lenders may offer this option as well.
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Federal loan consolidation. Combine multiple federal student loans into a single loan through federal loan consolidation, extending your repayment period up to 30 years and potentially lowering your monthly payment. Unlike refinancing, consolidation keeps your loans within the federal system, preserving federal borrower protections.
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Enroll in autopay. Enjoy a 0.25% interest rate reduction by setting up automatic payments for your student loans through your servicer. For private loans, inquire with your lender about autopay benefits.
Contact your lender for personalized assistance. Prior to contacting your student loan servicer, conduct thorough research, present your situation, and inquire about the available relief options.
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