Should You Refinance Your Federal Student Loans?

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Over the past several years, more student loan borrowers are finding themselves buried under overwhelming student loan debt.

Today, over 43 million Americans have student loan debt. Even more shocking, total student loan debt in the country has increased a whopping 84 percent since the recession, amounting to 1.23 trillion dollars — yes, trillion with a “T.”

As student loan debt has turned into a full-fledged crisis, student loan refinancing companies have emerged to provide relief to student loan borrowers. These student loan refinancing companies — which are private lenders, unrelated to the state or federal government — offer a solution to student loan borrowers looking to lower their high interest rates and make student loan payments more manageable.

Through student loan refinancing, borrowers can refinance high-interest student loan debt and potentially score a lower rate, saving thousands of dollars in interest over time. Those savings can then go toward extra payments to get out of debt even faster. Additionally, borrowers can select a longer term to obtain a lower monthly payment as well.

3 questions to determine if refinancing federal student loans is right for you

While refinancing can be a major financial improvement to those who qualify, there’s one (big) caveat.

When you refinance your federal student loans with a private lender, you forfeit most federal student loan protections. Student loan refinance companies can refinance both federal and private student loans, but given this one potential issue, many borrowers often ask us: Should I refinance my federal student loans?

Read on for tips and tricks to help you decide.

1. How much money can you save by refinancing federal student loans?

When you refinance federal student loans, you give up benefits such as income-driven repayment plans and loan forgiveness, so it’s important to analyze if the risk/reward of refinancing makes sense.

Refinancing your federal student loans can get you a better interest rate, and save you money, but how much you will actually save by refinancing? Be sure to run the numbers with our student loan refinancing calculator.

Student loans most likely to benefit from refinancing include Grad PLUS and Parent PLUS loans, which bear relatively high interest rates ranging from 6% – 9% depending on the year you obtained them.

Most student loan refinancing companies allow you to check your prospective rate before filling out a full application. Checking your interest rate will typically result in a “soft” credit pull and won’t affect your credit score. This lets you shop for the best interest rate and calculate how much you’ll save without hurting your credit.

2. Do you plan on using any federal repayment options?

The federal government has created several income-driven repayment plans, which lower monthly payments, to make repayment more manageable for federal student loan borrowers. These programs include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and the Revised Pay As You Earn (REPAYE) plan.

Some of these plans are need-based and only available to certain eligible borrowers. Others are available to most federal student loan borrowers. While there are definite downsides to an income-driven plan (such as paying more in interest or getting hit with a tax bill after loan forgiveness), these plans can be a lifesaver if you lose your job, experience economic hardship, or simply need the lowest possible payment.

In addition, if you work as a federal employee or for a specific not-for-profit employer, such as a teachers, lawyers, or doctors, you may be eligible for student loan forgiveness after making consistent payments over a set period of time. By opting to refinance your federal student loans, you are no longer eligible for any of these repayment plans or loan forgiveness programs through the federal government.

If you have a high debt load, it is usually a safer bet to keep your federal loans, along with the option to apply for alternative repayment plans if needed.

If you are confident in your ability to repay your loans over your given repayment term and are seeking to maximize savings, and you also have a good credit score and healthy income, refinancing your federal loans could be a wise option.

3. What are the potential new repayment terms from refinancing?

If you’re thinking of refinancing your federal student loans, it’s crucial to compare your repayment terms. Be sure to look at your:

  • Repayment period (or how long you will be paying your loans)
  • Interest rate
  • Monthly payment

For federal student loans, you can have anywhere from 10 to 30 years (for consolidated loans) to repay your loans. Refinancing companies typically offer repayment terms ranging from 5 to 20 years.

Also note that federal loans are fixed-rate loans and guaranteed to maintain the same interest rate during repayment.

Private lenders, on the other hand, offer both fixed and variable interest rates. These options can either hurt you or help you, depending on current and future interest rate market conditions. It is typically a safer bet to choose a fixed-rate loan, but you can also realize additional interest savings with a variable rate loan in a low interest rate market.

If you do choose to refinance your federal student loans, understand what impact it may have on your monthly payment as well. You’ll want to do a side-by-side comparison of your repayment terms to understand if refinancing will truly benefit you in the end.

Wondering if refinancing is a good idea for you? Answer a few questions below and we’ll help you find the right solution! Otherwise, scroll down to read on.

Student Loan Hero recommends:

Deciding to refinance your federal student loans can be a big decision. There’s no doubt that refinancing can be helpful for private student loan borrowers, but given the repayment flexibility and loan forgiveness options the federal government provides, it’s a tougher decision to make regarding federal student loans.

So what do we recommend? If you recently graduated, are underemployed, or thinking of changing jobs, we recommend keeping your existing federal loans due to the generous repayment options available until you stabilize your employment situation.

However, If you are in a comfortable and secure financial and employment position, have good credit, and are seeking to eliminate your student loan debt as fast as possible, we recommend examining refinancing as a viable option.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
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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

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

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.