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When Not to Refinance Your Student Loans

Refinancing is an attractive option for many people who feel burdened by their debt from secondary education. Refinancing is a finance term for changing the terms of your loan, typically the interest rate and how much time it will take for you to pay the loan in full. That’s not to say refinancing your student loan is always a good idea. It’s best reserved for certain times only. As enticing as some refinancers make the idea seem, just as many of them are predatory, and don’t really care whether you’re in a good position to be refinancing.

 

Here are some things worth considering:

 

 

You want to take advantage of federal programs

Many student loans come from the federal government. When you refinance a federal student loan, some other financial institution is essentially buying your debt from the government, and then having you repay them as opposed to the government. This means your loan is no longer federal, and you can’t take advantage of any programs they currently have or will have in the future. The federal incentives most commonly used for student loans are flexible payment plans, income-driven plans, and loan forgiveness in rarer cases. Should you refinance, you forfeit your opportunity to take advantage of these programs.

 

The change in terms isn’t significant

The undeniable draw to refinancing is to get a much lower interest rate, so you’ll end up saving money in the long run. If your credit score and financial situation have changed little since you first got the loan, chances are you’ll be offered something nearly identical to the loan you’re trying to refinance. When it comes to changes in the interest rate of 1% or less, the savings you make spread out over the years you’ll be repaying might not be significant enough for you to bother refinancing. If you really want to be sure, get a quote, and then figure out how much money you’ll save. Divide that by the number of years you’ll be paying back the loan, and you’ll see how much extra money you must experiment with every year. Student loan refinancing should make your life easier, not more complicated.

 

Your income isn’t consistent yet

Depending on who your loan is with, you might have the option for flexible payment options in case you budget poorly one month compared to another. Most times, this is used by people who are still adjusting to their full-time job and living on their own. If your income or spare cash isn’t consistent yet, consider putting off your student loan refinancing plans. If you get locked into a loan with less forgiving payment options, you’ll end up with severe penalties and more debt.

 

Conclusion

Think carefully before refinancing your student loan. You’re more or less getting a brand new loan that’s nearly identical to the first one, just with a few new terms available. Often, getting a quote is completely free with no obligation, so there’s no harm in testing the waters. Once you get that quote, however, carefully weigh the new terms and conditions against your current ones before diving in.