Pros and Cons of Refinancing

So you’re thinking about refinancing your student debt! That’s great news, and you should always be optimizing your financial situation. Of course, refinancing isn’t always the best choice for everyone so we think it’s important you have all the facts before you decide on what to do. Below we’ve listed out the pros and cons that stick out to us:

Pros

Lower interest.
If you can lower your average weighted interest rate you may be able to save $ on interest with a refinancing. Now that you have graduated, you may also get a boost from other financial factors such as your credit score, income, etc.

Lower monthly payments.
Assuming you keep the same term as your previous student loans, you may be able to lower your monthly payments and have extra $ to use - whether it’s saving, investing, or spending for that trip.

Simpler payments.
If you are consolidating multiple loans into one loan through refinancing, you no longer have to manage multiple lenders and servicers and potentially forget to or make a late payment each month.

Cons

No federal benefits & protections.
If you have a federal loan and refinance with a private lender, you will likely lose all or some of your benefits & protections (some lenders still offer these but at a limited level). If you don’t feel secure with your income (such as having lowered income in the future), you may want to keep different benefits such as different payment options (e.g., income-driven repayment), deferment, and forbearance. Also, if you are working towards federal loan forgiveness you will likely lose that when you refinance with a private lender.

No ability to hit pause.
We wanted to state it again that if you refinance a federal to a private loan, if you lose your job or your income changes you will most likely need to keep making your payments. You should definitely feel comfortable with your job situation and you have $ saved up in case of of emergencies.

Not forgiven upon death.
Private student loans will usually stay with you and your family upon death.

Other Things to Consider

Term of Your Loan
If you are almost done paying your loans off (e.g., you have a few years left), a refinancing might not make sense and might add more years to your loan.

Release of Your Cosigner
When you took out your student loans, there was a chance that you might have had a cosigner. Depending your financial situation, you might be able to release them out of this obligation.

Don’t know what a refinancing is? Check out our FAQ for this and more answers!

Are you ready to optimize your student debt? Check out our student debt plan!

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