9 Pros and Cons of Refinancing Private Student Loans

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Do you have federal or private student loans you are considering refinancing? Although there are some good reasons to do so, be sure to carefully weigh the pros and cons of refinancing your student loans. Keep in mind that refinancing private student loans is not the same as federal loan consolidation. You’ll see why below:

Pros to Refinancing Student Loans:

  • Lower your monthly bill: It makes sense to refinance your loan if you can reduce the monthly payment amount, giving you needed budget flexibility. When you refinance your loans, you can choose a new loan term. Refinancing lenders typically offer options ranging from five to 20 years. If you choose a longer term, you’ll pay more in interest over time, but you can lower your monthly payments. You can use the student loan refinance calculator to see how refinancing can affect your payments and repayment total.
  • Save money: You can also reduce the total cost of the loan, saving you money in the long run. In some cases, you can both reduce your monthly bill and save on the total cost of the loan. With refinancing, you may get a lower interest rate than what you’re currently paying, which can lead to savings over time. You can reduce your interest rate even more by signing up for automatic payments with your refinancing lender. The biggest appeal of refinancing private student loan debt is the ability to save money. If you have good credit and a reliable source of income, you could potentially qualify for a lower rate than you have on your existing debt.
  • Consolidate payments: Refinancing helps you streamline your bills. If you borrowed multiple years while in college, you likely have several different loans to pay for your degree. In fact, Saving For College reported that the typical undergraduate borrower had as many as a dozen student loans. Keeping track of 12 different loans, payments, and due dates can be confusing. Whether you have loans with one or multiple lenders, you can consolidate several student loan payments into one easy monthly payment.
  • Cosigner release: By refinancing, your original student loans are paid off, releasing your consigner from their obligation. According to the Consumer Financial Protection Bureau, more than 90% of private student loans are cosigned. Having someone serve as a cosigner increases your chances of qualifying for a loan, but it also means the cosigner is equally responsible for repayment of the loan. Any missed or late payments can also negatively affect the cosigner’s credit. If you meet the lender’s borrowing criteria, you can refinance your loans solely in your own name.

Cons of Refinancing Student Loans

  • No interest rate change: Know that you may not get a better interest rate or terms than you have with your current loans. Although some borrowers can qualify for lower rates and save a substantial amount of money, not all borrowers will get a lower rate. If you have poor credit or insufficient income, you may not qualify for a lower rate – or need a cosigner to qualify.
  • Loss of federal benefits: You could lose some benefits that you currently enjoy with your federal student loans. For example, the federal government suspended payments on student loans (see the CARES Act). There are deferment and forbearance options that let you pause loan payments while unemployed, enrolled in school or serving in the military. A federal student loan borrower may be eligible for student loan forgiveness programs, including Public Service Loan Forgiveness (PSLF). They also come with income-driven repayment plans.
  • You’re Locked Into a Repayment Plan: Are there any downsides to refinancing private student loans? When you refinance, you choose a new loan term and payment, and you’re locked into that plan until the loan is paid in full – unless you refinance your loans again.
  • It May Lengthen Your Loan Term: If you refinance your loans and choose a longer loan term to lower your monthly payments, you could be in debt for several more years. Carrying student loan debt for more time can make it difficult to balance other financial priorities in the future.
  • One more thing to consider: To qualify for a lower interest rate with a refinancing loan, you will need to be in good financial shape, a requirement not often easy for recent college graduates who are getting on their feet.

Bottom line: There can be good reasons to refinance your student loan, but there are also some pitfalls. Your financial situation and budget are unique, so do your research before refinancing.

Is Refinancing Right for You?

Now that you understand the pros and cons of refinancing private student loans, you can decide if it’s the right financial decision for your situation. Whether it makes sense is dependent on your current outstanding balance, interest rate, and credit score.

To see if student loan refinancing will help you, you can get a quote from College Ave in one minute without hurting your credit score.





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