Having student loans is probably one of the main things that you and a complete stranger will have in common. It seems that we all have them, and we all are looking for some way to gain an ounce of relief from them. One of the worst parts about student loans is that they’re here to stay until you pay them off, have them forgiven through a government program, become permanently disabled or even worse die. Unfortunately, student loans can not be discharged in a bankruptcy leaving many faced with financial hardships due to the obscenely large payments and out of control interest rates.
It seems like student loan refinancing companies are popping up all over and admittedly their spiels can be very tempting. Who wouldn’t want just one payment with a lower interest rate? Some refinancing companies even offer you the ability to skip a payment if needed if you’ve had a great history of paying on time in the past. Don’t let the bright lights and acrobatic tricks take your focus off the fine print. While student loan refinancing may seem like a good idea and you know everybody else is doing it, it may not be the best choice for you.
You’re Giving Up Your Benefits!
Although it seems like the government is not here for those of us struggling with student loan debt, they actually have a boat load of programs in place to try to make paying back student loans relatively feasible. No, seriously they do. It may not seem like it when you’re staring at the overall number that you owe which I don’t recommend you ever do if you don’t want to have an anxiety attack, but there are programs in place for us that can possibly help ease the burden of repayment. It’s important to note that if your loans are financed through a private lender, you may not have the same repayment options. Refinancing your student loans is a huge risk, especially if feel your income and job situation aren’t as solid as you’d like them to be. When you choose to refinance with a private lender like Earnest or Citizens Bank you give up, you’re giving up your right to utilize these programs if the need should ever present itself. When the loan is owned by the government, you have the right to apply for a forbearance, deferment, income-based repayment, and even a graduated repayment plan which I broke down for you in this post. Refinancing gives you one option and one option only. You gotta pay your bill regardless of your situation. If you work for a public service organization and choose to refinance with a private company, you’re no longer eligible for the ten years 120 payments student loan forgiveness plan. Yea you locked in a great interest rate, and your payment was lowered but if something were to go array the only thing these refinancing companies want to hear from you is that you will continue to make payments on your agreed upon due date. Some refinancing companies allow borrowers to apply for a forbearance if they lose their jobs. However, this in itself is risky as it involves an application process and is based on if you lost your job involuntarily and you can prove it.
It’s Not a Simple Application.
Since refinancing your student loan is done through a private lender you shouldn’t be surprised that these companies want to get all up in your bidness to find the tea on you and your current habits as well as your earning potential. Some lenders will want links to your LinkedIn accounts, know how much you currently have in savings, and want to see proof that you actually graduated. You may also need to meet certain requirements like credit score, live in a specific state, as well as earn a minimum of $60,000 a year.
Choosing to refinance ultimately comes down to what you can handle financially. Before making the switch to sit down and thoroughly analyze your situation. Ask “what if” questions and think about how you would handle emergencies if they were to arise. For some refinancing may be a great option especially if they have a lower balance and a high interest rate. For others, it may be better to remain safe, or as safe as you can be with the government than risk it by going with a private lender.