Should you refinance your student loan? It depends. Do you have private loans or Federal student loans? How’s your credit? There are several factors to consider.
If you have Federal student loans, you should carefully consider the ramifications of refinancing them with a private lender. Once you do that, you will lose all of the Federal protections that come with Federal student loans – for example, you will no longer have the option of income-based repayment or Federal deferment or forbearance. If you think these options don’t help you now anyway, you might need them in the future. What if you lose your job or suffer a pay cut? A private lender doesn’t have to offer you a deferment or forbearance at all, much less allow you to peg your monthly payments to your income.
But if you have private student loans, refinancing might be a good idea, especially if you can get a lower interest rate or if you are trying to escape some crazy repayment terms in your existing loan. For example, NJCLASS loans often require high monthly repayment amounts with high interest rates. You may want to refinance just to escape the NJCLASS loan.
Beware: If you’re already late on payments or in default, the resulting credit damage is likely to prevent a successful student loan refinancing. Remember, you have to qualify for a new loan, which is what refinancing is. The Department of Education allows you to consolidate a Federal student loan into another Federal student loan to get out of default one time, but consolidation during default generally isn’t possible with private student loans.
