Student loans are a significant burden for 43.3 million people in the United States. For those who want to get out of student loan debt as quickly as possible, refinancing student loans is typically a good option. Refinancing your student loans allows you to get better interest rates or change your monthly payment. This can often help you to pay off your debt faster, depending on your situation.
Despite its perks, refinancing your student loans might not be the best option in all situations. Below are three examples of situations where refinancing your federal student loans with a private loan company might not be the best financial move.
If You Plan to Pay Them Off in the Next Year
Refinancing your student loans is not a terribly lengthy process, but it definitely takes time. You have to get quotes from several lenders, gather important documents, and talk to lenders on the phone. Sometimes you have to pay origination fees and other fees when moving from one lender to another. For these reasons, if you plan to pay off your student loans in the next year, it might not be worth the time and hassle to go through the refinancing process.
If You Want to Utilize the Perks of Federal Loans
Federal student loans have some of the most flexible repayment terms in existence. Federal student loans offer income-driven repayment plans as well as the opportunity to defer your loans or go into forbearance. Private loans are typically stricter when it comes to their terms. They might not be as flexible if you can't make a payment and don't offer the same range of repayment and forgiveness options.
So, if you feel like you might need to utilize some of the perks of the federal loan program, it might not be the best time to refinance your student loans.
If You Work in the Public Sector
One of the most popular loan forgiveness programs is the Public Service Loan Forgiveness Program. This is a program where you work for a non-profit or in a qualifying job in the public sector for 10 years. During that time, you must make on-time payments and once the time is complete, your student loans will be forgiven.
However, if you refinance your loans to a private loan company, you will no longer be eligible to enroll in this program. So, if you work in the public sector for nine years and then refinance your student loans with a private company, your student loans will not be able to be forgiven.
Some people want to be able to choose where they work without worrying about it having to have a public service designation, and for those people, refinancing and paying off their loans aggressively might be the better route.
Ultimately, refinancing your student loans is typically a great option for people who want to lower their interest rates and pay off their student loans faster. However, if you are in one of the situations listed above, refinancing your student loans might not be the best option for you.