Like any other loan, student loans (whether federal or private) can be refinanced. For those who may not be familiar with the process of refinancing, simply put, this is taking out a new loan to pay off your existing loan(s). While this sounds counterintuitive, many debtors consider refinancing their loans as this can, ideally, lead to more favorable terms and lower monthly payments.
For student loans in particular, it’s important to note that those who have federal student loans may want to exercise caution when thinking about refinancing. This is because refinancing student loans will be done via a private lender since you can’t refinance with the federal government.
Consequently, this means losing access to government protection for your federal student loans, such as income-driven repayment plans and forgiveness programs.
Typically, those who opt to refinance their student loans consist of professionals who have already graduated. It’s not common for lenders to allow student loan refinancing when the student is still in school, as most lenders require applicants to at least have a bachelor’s degree.
Aside from this, here are some other factors lenders take into consideration when checking who can qualify for student loan refinance:
If you’ve decide to refinance your student loans, the following tips and steps may make it easier for you to prepare and apply for refinancing:
Currently, it’s not advisable for those with federal student loans to refinance. This is because the CARES Act, passed in March 2020, suspended payments and interest for federal student loans, effectively setting the interest rate to zero. This means your balance won’t increase even if you hold off on payments.
On the other hand, those who have private student loans may want to consider refinancing now that lenders have lowered their rates due to COVID-19 restrictions.
Ultimately, it is up to you to decide whether refinancing is the wisest course of action. Your goal, of course, should be to pay off the loan in a way that won’t lead you to financial ruin.