Should You Refinance Your Federal Student Loans?

Student loans are a fact of life for most college graduates. If you have these loans, you are likely receiving email, snail mail and Internet ads encouraging you to refinance your loan with one of the dozens of student loan companies. These loan offers often tout significantly lower interest rates when compared to your current rates.

Naturally, you want to make sure you are making a good decision in your loan repayment strategy. Adding complexity to finding the best strategy is the fact that this is much more than a loan comparison question. Depending on your circumstance, it may make sense not to make any changes.

If refinancing lowers my interest rate, why shouldn’t I just do it?

For most consumer debt, our guidance would be to save as much in interest as you can, but there is a major caveat in the case of federal student loans. The only options to refinance a federal student loan are in the private sector. However, federal loans typically offer more benefits than private loans such as:

* A variety of options to modify payments if you experience a financial hardship or return to school

* Lack of credit checks, in general

* Loan forgiveness options based on public service employment, certain occupations or choice of payment plan

* Loan discharge available in cases of total permanent disability or death

Should I avoid refinancing my federal student loan?

It is important you are aware of what you could be walking away from if you refinance to a private loan. If you are not working in a field that currently offers loan forgiveness options and you are financially stable, you can possibly save money by refinancing with a private company. Be sure to weigh the options first. Sites like Student Loan Hero and Credible offer a means to compare multiple companies.

Keep in mind that the best refinance rates are reserved for those with the best credit. The lowest rates are often variable and require autopay. Our Cost of Credit Calculator can help you compare the cost of sticking with your current loan and your refinance offer.

You can maintain federal loan status and consolidate.

It is not uncommon to have taken multiple loans in your educational journey. If you would like to simplify multiple loans into one payment at one interest rate, consolidation is an option. Consolidation offers the security of a loan payment not inadvertently falling through the cracks. On the downside, if you are using a debt repayment strategy like a debt snowball, it takes away the momentum of paying off the smaller student loans one by one. You can begin the process of consolidation by going to the Federal Student Aid site.

Refinancing and consolidating are only part of the solution.

If you determine refinancing or consolidation is not beneficial, don’t get down on yourself because those are only tactics in a larger strategy. Put the payment strategy in place that best suits you and move forward with the knowledge that you have researched the options and made an informed decision. The ultimate goal is to make sure student loan debt is not a threat to your overall financial wellness.

By Cyrus Purnell - https://www.forbes.com/