MICHELLE SMALENBERGER, CFP® & ROBERT STOLL, CFA® & CFP
Should You Refinance Your Student Loans? [Federal vs Private Loans]
So a lot of attention is paid to saving for college and paying for it, but what if you went to college and graduated and have student loans outstanding? What can you do? Well, we’re going to talk about refinancing today.
And really there are two big benefits you’re going to get out of refinancing. There’s simplifying your life, because as you go through college you get different sort of loans each semester, and also the opportunity to lower the cost of your loans by getting a lower interest rate.
The only thing with that. There are a couple of things that you need to be aware of. What are some of the key things that student loan borrowers need to know?
A Lot of people come in and say, “Can I refinance my loans? Should I?”
But there is some information you could get first before we can figure that out.
First, you need to know the interest rate that is currently on your existing loan. So as Rob mentioned, each semester you may have a different loan. And those can be grouped up sometimes into one loan that you make, so you have to research, what’s my interest rate per loan that I have?
And then the second part that I have – is it a private or a federal loan? Cause that’s going to affect how I actually can refinance.
What are some of the resources whether it is private or federal that could help someone to figure this out?
If you have federal student loans, the place to go is StudentLoans.gov. There’s a wealth of information there. For a government website, it is pretty good and comprehensive in terms of you’ll know what all your refinancing options are.
A lot of times when you first get a student loan especially, your student interest rate is very high because you are in school and you aren’t earning an income. So once you graduate and you are earning income for a couple of years, a lot of the time you can get a much lower interest rate looking at a place called SoFi or Envest or your local bank. They might offer you a much lower rate.
The one thing you really want to be careful of though, you want to make sure you are not refinancing your federal loans into a private loan. Federal loans give you the opportunity for different repayment types which could make it a lot easier to repay those loans. But most importantly, they give you the opportunity to forgive those loans.
If you have the opportunity to get your loans forgiven, you want to make sure you don’t make those federal loans into a private loan.
Michelle, how can people get help if they are not sure what to do? How do we help them with that?
We’ve helped a lot of clients figure out if they should refinance and if that makes sense to shorten the term that they are currently paying. Because overall that reduced the amount of interest that you ultimately pay – or also just reducing that interest rate. Interest rates have come down, so there can be some opportunity for refinancing.
If we can help you here at Financial Design Studio, please reach out. We’d love to be a part of saving you some money.