Student loan debt is at an all-time high and steadily climbing to the astronomical number of 2 trillion. Thousands of people in the US struggle under these loans decades after graduating. And while some debt might be good, these loans certainly aren’t it. Right now, interest rates offered for loan refinancing by some private lenders are at an all-time low as well.
Does this mean that now is your chance to save yourself thousands in future payments? Unfortunately, the road to living student-debt-free isn’t as straightforward. Therefore, you need to make some very important consideration before trying to refinance your federal student loan.
Refinancing Student Loans Now Might Lead to Huge Losses
At the moment, the average student debt in America is $37,000. However, according to some experts, refinancing right now might cost you up to $50,000 in the long run. These numbers clearly show that one needs to take time and study the situation.
The reason for possible losses is that refinancing might lose you federal student loan protections. Therefore, this matter is only relevant for federal student loan borrowers. If you aren’t among those, refinancing might indeed be a great opportunity for you. However, if you have benefitted from the suspension of payments granted by the Cares Act, you might want to wait.
The suspension of payments on federal student loans expired on January 1st 2021. No new measures for extension have been announced as of yet. This isn’t a surprise as the President-elect has a lot on his plate right now.
The US job market isn’t doing well in the coronavirus crisis. Therefore, many people might be desperate and willing to refinance at the lowest possible rate when they are forced to make payments again.
However, that lowest rate comes from private lenders. This means that if you do this, you will lose any future benefits you might have gotten from federal programs. It is really that simple. Your loan is available for extension or any other relief options offered by the federal government while it retains the status of a federal loan.
Once you switch to the private lending sector, your choices will be extremely limited. In fact, you might not get any extension options at all.
Now, the situation might appear grim at the moment. However, remember the Cares Act initiated just last year. It’s highly possible that the new government will launch a similar program. This means there is a good chance that at least a part of your loan will be forgiven. You might also get some other leniency on this debt. Therefore, federal protection is currently invaluable.
When Is Student Loan Refinancing a Good Choice?
Federal protections might be very promising, but they don’t resolve the issue of payments right now. Therefore, you also need to consider your personal situation. Answer the following questions to get a clearer idea of what’s best for you.
- Do you have a chance to make your regular payment right now?
Waiting for federal debt relief is only possible when you can wait at all. If you are completely out of funds, this prospect might not be an option. In this case, you should try to make the best of the refinancing offers available now.
- Are you eligible for possible federal debt relief?
If not, you don’t need to worry about this at all.
- Can you refinance your loan?
This is a matter you need to research no matter what. It’s true that refinancing rates are very low now. However, trustworthy lenders are also limiting loan originations. Therefore, you might not be able to get that refinancing by default. Or, you might only be able to access some unreliable private lenders. This is too big a risk. Always check if your lender is certified and insured.
In Conclusion: Debt Advice for New Grads
When you graduate, you might be overwhelmed by the changes in your life. That’s why new grads should always look for advice but also stop and think through their choices on their own. Every choice you make now will affect your life for years to come. Therefore, be sure to consider every angle before making big financial decisions. Do not rush trying to refinance your loans at a better rate. Instead, take a moment to see what you might lose if you give up the federal protections you have now.