Should I Refinance My Student Loans?
There are many potential benefits to refinancing student loans. If you have been making regular payments on your existing loans, you may be wondering how refinancing may benefit you. For example, with Citizens Bank you can refinance both federal and private student loans with the Education Refinance Loan for a single, more manageable monthly payment. You may also be able to receive a lower interest rate and/or lower payment.
That said, it s important to keep in mind that when you refinance your student loans, you replace all of your current and future benefits with the benefits of the new refinance loan.
Check out the two grids below for helpful tips on what to consider before refinancing your student loans. If you feel like refinancing is the right fit, you can get your personalized rate and savings without impacting your credit here.
Refinancing considerations for all student loans
Consider the potential benefits and factors of consolidating or refinancing federal and private student loans in the table below. It’s important to note, when refinancing federal student loans, there are additional considerations outlined in the next section.
When you consolidate all of your student loans with us, you’ll make a single monthly payment.
Depending on the interest rates you have on your current loans, as well as your credit (and the credit of any co-signer on your new loan), your new loan may have a higher interest rate or a higher monthly payment.
If you switch from a fixed rate to a variable rate, the variable rate may be lower right now. However, it is possible for that variable rate to go up or down each month. If the rate goes up, your monthly payments will go up, too.
The two main ways to lower your monthly student loan payment when you refinance or consolidate are:
- if your new loan has a lower interest rate or
- if your new loan gives you a longer time to pay it off.
If your refinance loan extends your time to repay (but your interest rate is not lower), you’ll probably pay more interest over the life of the loan.
However, remember that there is no prepayment penalty if you are able to prepay all or any part of your refinance loan, and it can help you ultimately save over the life of the loan. This can provide the best of both worlds by improving your monthly cash flow and giving you the freedom to prepay your loans when possible.
For more information about how interest rates affect monthly payments, speak to a Student Loan Specialist.
Generally, a loan with a longer term carries a higher interest rate. So, if your new refinance loan has a longer term than your existing student loans, you’ll probably pay a greater amount of interest over the life of the loan.
When you repay your loans via prepayment (paying more than the minimum payment each month), you may reduce the total interest. However, refinancing may cause your total monthly payment to be higher than on your existing student loans.
If your current student loans have a variable interest rate, your monthly payment can change as the rate changes. If you refinance into a fixed rate loan, you’ll have the certainty of a constant monthly payment.
However, the fixed rate you get today will likely be higher than the variable rate you have right now. Your new monthly payment may be more than your current monthly payment, but your payment will never increase.
If you currently have student loans with a co-signer who has better credit than you do, and you choose to apply for a student loan refinance without a co-signer, your new loan may have a higher interest rate and higher monthly payments.
Consider how you’ll make your monthly payments if you lose your job or source of income, or choose to refinance your student loans without a co-signer. If you do apply with a co-signer you may be able to release them from the loan after making a certain number of on-time payments. Check with the lender for details on their co-signer release policy.
Special considerations for refinancing federal student loans
When you refinance, you waive any current and potential future benefits of your federal loans and replace those with the benefits of the Education Refinance Loan. For this reason, before refinancing your federal student loans, it’s important to make sure you’re aware of any repayment options or benefits unique to federal student loans that you may lose.
Remember that you can choose to refinance your federal and private student loans separately. To keep your federal loan benefits, you may prefer to refinance your federal student loans through the Federal Direct Consolidation Loan program. Then, you could refinance your private student loans with us. However when you consolidate both types of loans together you have the benefit of a single, more manageable monthly payment.
With some federal student loans, a low income may entitle you to a lower monthly payment. If income-based repayment is important to you, you should strongly consider consolidating your federal student loans through the federal government. When you refinance your student loans with our Education Refinance Loan, the monthly payment is based on the interest rate that you receive and there is no opportunity to lower that rate based on limited income.
Borrowers in certain types of public service jobs (government jobs, teaching, the military, AmeriCorps, Peace Corps and many other nonprofit jobs) may be entitled to have significant portions of their federal loans forgiven.
As with most private refinance loans, our Education Refinance Loan doesn’t offer loan forgiveness for borrowers with public service jobs. If you have federal loans and intend to stay in your public service job, you should determine if your loans would be eligible for forgiveness. If so, consider consolidating those loans through the federal loan consolidation program.
Active duty military personnel are eligible for several federal loan benefits. We offer military deferment and an interest rate cap even if you are on active duty at the time you refinance. If you or your spouse are currently serving or plan to serve in the military, you should compare the military benefits of a federal loan with those of the Education Refinance Loan.
The Education Refinance Loan offers up to 12 months of forbearance, including for medical or economic hardship, over the life of your loan with no more than two months of forbearance at a time. If you don’t have an emergency fund to cover short-term financial issues, you may want to refinance only your private loans.
Both federal loans and our loan are forgiven in the event of the student borrower’s death or permanent disability.
If your interest rates are currently lower than what the Education Refinance Loan offers, you would benefit from consolidating your federal loans with a Federal Direct Consolidation Loan where your new rate is an average of your current rates.
If you have already defaulted on your student loans, those loans are not eligible for refinancing with the Education Refinance Loan. If you default on a new Education Refinance Loan, we don’t have a program to formally cure that default and eliminate the record of those defaults in your credit report.
Each employer who offers this benefit has a different policy on which federal loans the employer deems eligible for payment. If your job offers this benefit, you should check with your employer to make sure your refinance loan will still qualify for payment.
In rare circumstances, federal loans may be forgiven by the Department of Education if your school has closed or if you were defrauded by your school. More information may be obtained from the Department of Education at https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation. By refinancing federal loans into a private refinance loan, you waive any right and benefits you have to have those loans forgiven by the federal government.
Reasons not to refinance your student loans:
- Your credit has worsened significantly since you got your original loan.
- You don’t want to lose features and benefits of your current loans that our Education Refinance Loan cannot provide.
We know this is an important decision and we’re here to help throughout the entire process. For assistance in evaluating whether refinancing is right for you, speak to one of our Student Loan Specialists at 1-877-464-6340.