student debt / student loans

Think Twice Before Refinancing a Federal Student Loan

 Don’t be tempted by super low interest rates to refinance FEDERAL student loans that are subsidized by taxpayers with a private lender. Especially now when payments have been suspended through January and may be extended again. If you are working and can afford to repay your federal student loans, go ahead and keep paying so you will be free of this debt sooner.

It is critical to understand the difference between federally subsidized student loans and loans from non-federal sources like banks and credit unions. (This also applies to obtaining loans in the first place.)

Federal loans come with a array of special protective benefits for borrowers that would be lost by refinancing in the private sector, including: 

  • consumer protections
  • repayment options, including income-driven repayment plans
  • loan forgiveness

If you plan to take out student loans, educate yourself with this blog by searching for student loans and student debt. If at all possible, consider limiting your borrowing to federally subsidized student debt. If you already have loans, review the source and provisions, including interest rates, on your loans. Avoid private lenders if at all possible; while the rates may be low now, variable rates will likely increase in the future and you won’t have access to the many benefits of federal loans. 

A great resource is the federal Consumer Financial Protection Bureau: https://www.consumerfinance.gov/consumer-tools/student-loans/

Thanks to Cheryl Winokur Munk for her article “Think Twice Before Refinancing a Federal Student Loan” in the 1/1/21 Wall Street Journal.

Source: Financial Planning for Women