If you have federal student loans, you may be aware that there is an option to consolidate them. In doing this, be advised that there is no benefit provided with respect to your interest rate (your interest rate will be a weighted average of your existing loans). You can also alter your repayment terms by consolidating, but in reality, you will end up paying more money because you will be making more payments.
There are now private companies that allow you the opportunity to refinance your federal student loans as well as your private student loans. While you are also consolidating your loans by combining them into one by refinancing, you will find you should have a lower interest rate than if you consolidated.
Pros / Who will benefit from refinancing
- If you are comfortable with your ability to repay your loans, you have a great chance to find a student loan refinance company who will provide you with rates starting as low as 3.50% fixed, 1.90% variable. These rates may be significantly lower than your current interest rates.
- If you have good credit, you will be offered a better interest rate.
- You have the ability to refinance your federal and private loans, and can pick which loans you want to refinance.
- If you lose your job, some companies will temporarily pause your payments and even assist with helping you find a new job.
- Some companies provide additional perks, such as skipping one payment a year and making it up over time, switching between fixed and variable interest rates at no charge, and not having any up-front origination fees.
Cons / Who will not benefit from refinancing
- If you are currently behind on your student loans, you may not be approved for any refinance options. Your credit will be lower as a result of the missed payments and because of this, you may have trouble finding a company to assist you.
- Federal loans offer many protections, including Income Based Repayment and Pay As You Earn repayment plans. They also allow you the opportunity to put your loans into forbearance or defer them if need be. Private refinance companies may work with you if you end up losing your job or have something come up, but they do not offer the same protections that the government does.
- If you are working towards Public Service Loan Forgiveness, which affords you the opportunity to have your loans forgiven after making 120 qualifying payments on your loans while employed full time in certain public service sectors, refinancing will eliminate your chances of having your loans forgiven.
There are benefits to refinancing your student loans, as well as risks. Regardless of your current situation, if you’re in the market for a loan of any kind, AmOne can help. AmOne is a free loan matching service, with over 15 years of experience dedicated to helping people in all credit situations find the best loan possible.