With interest rates rising, many of my clients with student loans have been asking if they should refinance their student loans. It is always good to compare your current rate with what you may be able to get with a new loan servicer, and with rates on the rise, it might be a good time to do so. I usually recommend that my clients look at credible.com to see what rates they qualify for. They do a "soft" credit pull, so it will not affect your credit rating, and it provides the client with a list of interest rates and terms so that they can make an educated choice on which is the best option. It is important to first calculate how much you have available to spend on the loan payment, and then explore your options. Money.com recently published this guide to student loan refinancing, and it contains some valuable information for comparing different loan services including fees, interest rates and the need for a co-signer.
For clients with direct federal loans, it may not make sense to refinance your student loan since you may benefit from income driven repayment plans that offer loan forgiveness. If you work for a qualifying employer, forgiveness under Public Service Loan Forgiveness can be achieved in as little as ten years time if qualifying payments have been made on time while working for a qualified employer and payments have been made on an income driven repayment plan. Some clients will not benefit from income driven repayment plans since their income is too high in relation to their loan balance, and for these clients, private refinancing can make sense. It is important to remember that if you privately refinance your loans, you lose all options to achieve forgiveness under an income driven repayment plan, and the loans may not be forgiven in the event of death or disability as they are under an income driven repayment plan.
About the Author
Patti Hughes is a Chicago Fee-Only Financial Planner. Lake Life Wealth Advisory Group provides comprehensive and objective financial planning, retirement planning, and investment management to help clients organize, grow and protect their assets through life’s transitions. She is a fiduciary, and does not sell products or earn commissions, so she truly acts in the best interests of her client