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I was so close.
Almost five years ago, I went through all the steps to complete a student loan refinance. All the steps, that is, except for signing the paperwork.
I knew that, should I refinance my student loans, I would save a considerable sum of money in the end. But I was scared to convert my federal loans into private. In the end, I made a major financial decision out of fear.
And that decision has cost me.
Should I refinance my student loans? Why I bailed at the last second
I originally found out about the ability to refinance student loans through SoFi. I met one of their team members on the streets of San Francisco during my walk to work one morning and applied as soon as I got to my office.
Once I saw the new rate I could get, there was no question of “should I refinance my student loans?” With a five year plan (versus my 20) and a rate 1 percent lower than mine, the answer was obvious.
All I had left to do was send in paperwork, which I planned to do that night. But by the time I got home, fear crept in:
What if I lose my job? I’ll lose my deferment and forbearance options if my loans aren’t federal anymore. Can I afford to take that risk? Should I refinance my student loans after all?
While this was a valid fear, my student loan payments were manageable enough to endure even when I was younger and seriously strapped for cash. This is partly because I had the graduated repayment plan but also because I took out as little as I possibly could. So the worry was sensible but didn’t make sense at a time when my career was becoming more stable.
On top of that, I was recently engaged. That meant I was soon to have a partner in life and a partner in finances, thus ensuring more ability to handle an economic hit should one happen to me. But it didn’t matter. I was simply too scared to move forward.
In the end, I didn’t refinance my student loans.
Why I should have refinanced my student loans
So why am I now regretting my decision? A few things, but notably, a shift in my payments.
Because my payments have now increased
Since I’m on the graduated repayment plan, I knew my monthly payments would increase at five years and again at ten. But here’s the thing: ten years came so fast.
Once I saw my payment increase a few months ago, the memory of my almost-refinance came flooding back. Had I refinanced, my payments would have never gone up because they would have been locked in at the refinanced amount. And, what’s even more painful to realize, those payments would soon be a thing of the past.
Because I would have been debt-free as of this year
As mentioned, I was looking at a five-year repayment plan when I considered refinancing. And guess what? That was four and a half years ago.
Had I gone through with the refinance, I’d be debt-free as of this year. Instead, I have another ten years ahead of me.
And those fears that held me back? They were valid but didn’t justify my decision. I did experience a few economic shifts in several moves and a few job changes. But, thanks to savings I never had to miss a payment. Therefore, I would have been fine on that new plan.
Should you refinance your student loans?
Answering “no” to the question” should I refinance my student loans” turned out to be one of the biggest financial mistakes of my life. And it all happened because I let fear drive my financial decision-making.
Fear can be healthy at times. After all, it’s the reason we do things like buy insurance and save up an emergency fund. But letting fear override logic? Not good.
If you’re thinking about refinancing your student loans and aren’t sure if it’s a good idea for you, here are a few questions to consider.
Can you afford to give up federal protections?
If you only have private student loans, this doesn’t apply to you. But if you have federal loans, understand that refinancing your loans converts them to private loans. And with that, you lose all federal protections, such as the ability to defer or forbear.
Consider your financial outlook for the next five years. Is your job or career stable? Do you have a healthy emergency fund? Do you think you can handle payments on your loans even if you become unemployed? If the answer to these questions is “no,” then refinancing might be a risk for you.
Are you eligible for forgiveness?
Speaking of federal loans, some are also eligible for forgiveness, based on your line of work, or whether or not you take on an income-driven repayment plan. If you refinance, you’ll lose that eligibility.
Do you want to pay your debt off faster?
It pains me to know that I could have been debt-free this year. But what about you? Are you motivated by the idea of paying your loans off faster?
If so, refinancing could be a good option, since the terms can go as low as five years. Just keep in mind you’ll pay more per month. The good thing is you’ll be able to see all of your options before you agree to anything.
Are you paying more or less interest than the refinance offer?
In light of my recent frustration, I decided to try again with refinancing. Sadly, the results were not the same.
Now, should I refinance my student loans, it would only be at a rate higher than I’m currently paying. I could get a lower rate if I’m willing to go for a variable rate, but I’m not (predictability on payments is important to me – but that’s something that is different for everyone). Therefore, this time I’m definitely not going to refinance. A shorter repayment term would be nice, but I’m not willing to pay more for it.
Don’t let financial fear lead to financial mistakes
No matter what you decide to do in the end, don’t let fear lead you to financial mistakes. Evaluate the pros and cons, understand what you can and can’t afford now and into the next few years, and then decide.
Financial decisions don’t have to be scary as long as you have a clear understanding of what you’re able to handle. And, if you decide you do want to refinance your student loans, here are a few options to help you. If you decide not to go that route, here’s some advice to help you figure out how else you can manage your student loans.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
2 Important Disclosures for SoFi.
3 Important Disclosures for CommonBond.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 5.87%||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.38%1||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 7.52%2||Undergrad & Graduate||Visit SoFi|
|2.47% – 7.99%||Undergrad & Graduate||Visit Lendkey|
|2.57% – 6.65%3||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.17%4||Undergrad & Graduate||Visit Citizens|