Cynthia Meyer, CFA, CFP®, ChFC® , Financial Planner at Financial Finesse and researcher for What Your Financial Advisor Isn't Telling You: The 10 Essential Truths You Need to Know About Your Money.
@CynthiaMeyer
Refinancing student loans can be a good or a bad idea, depending on the type of student loan you have. Refinancing at a lower rate, but continuing to make the same monthly payment, can help you pay off your student loans sooner.
If you have private student loans, and can refinance them at a lower rate that may make sense. There is growing availability of student loan refinancing, including refinancing sites like SoFi and Common Bond. Be careful, though, that refinancing doesn't mean you will pay the same or more in the long run by extending the term of your loan. Pay attention to fees, too.
If you have federally backed student loans, it may not make sense. Most importantly, with a federally backed loan, you have access to income-driven repayment plans, forbearance or deferment programs for borrowers. These can be critical to maintaining your credit should you experience a drop in income or other financial problems. You would lose that access if you refinanced with a private lender.
It's also generally not a good idea to refinance your student loans with a private lender if you are a teacher in a public school or work for a government or non-profit organization. Teachers may be elible for the Teacher Loan Cancellation Program or the Teacher Loan Forgiveness program. Government and employees of certain non-profits and certain types of companies may be eligible for the Public Service Loan Forgiveness program. If you refinance with a private lender, you'll lose those opportunities.
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