2 Frustrating Reasons I Should Have Refinanced My Student Loans

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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?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.