Risks & Rewards of Refinancing Student Loans

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Risks and Rewards of Refinancing Student Loans

 

Before refinancing any of your student loans, talk with your personal financial advisor, planner, or tax professional. Get a rate estimate from multiple companies in less than 15 minutes here. This will help you to determine if the monthly savings would be worth refinancing.

 

Rewards

 

1. You can get a lower interest rate.

Getting a lower interest rate will save you money. Refinancing $100,000 from 7% to 5% will save $12,051.56 over a ten-year repayment. This is an extra $100 per month staying in your pocket.

 

2. You can gain flexibility.

Companies will let you refinance over 5, 7, 10, 15, and 20 year periods. This will allow you to get a payment that fits better into your monthly budget. You can also refinance to a variable rate which may be even lower than a fixed rate.

 

3. You can get better customer service.

These companies actually care about you and are more than willing to help when you have questions. They offer phone and email support, and some even have a live chat feature that helps to get your questions answered ASAP.

 

4. You can get one monthly payment that pays automatically.

Instead of having to make separate payments to every single one of your student loans, refinancing will combine them into one monthly payment. They can even set up an auto-debit feature which will take care of making the monthly payments for you. Usually, there is a 0.25% rate reduction for setting up auto-pay.

 

Risks

 

1. You may lose the income protection offered by your federal loans.

Being economically stable is very important before you refinance your loans. Federal loans offer deferment if you lose your job or decide to go back to school. They also offer income-based repayments which can help you to save money while starting out after school. Some companies are now offering hardship protections in case you are laid off, so this risk is not as large as it once was. Some will even offer to help find you a new job! Having an emergency fund worth six months of your expenses in cash can greatly increase your economic stability.

 

2. You will lose your ability to qualify for PSLF.

If your employer meets the qualifications and you make 120 consecutive monthly payments, you may qualify for PSLF and have your loan balance forgiven after 10 years. This route can be very lucrative if done correctly. This benefit goes away if you refinance your loans; making it a very large risk. If you believe that you will qualify, and the government will not eliminate this program, then you most likely should not refinance your loans.

 

3. A politician may forgive all federal loans.

The probability of this occurring and the mechanics of how it would happen are really hard to determine, but it is still a possibility albeit small. This may or may not eliminate private student loans as well. Although the probability of this may be small, it is still something to consider.

 

4. You may lose the death benefit offered by your federal loans.

Federal student loans will be forgiven if you pass away while you still owe money. This may not be the case with private student lenders. One way to overcome this is to take out a term life insurance policy that will cover your student loan balance. The cost of the policy should be covered by the monthly savings with a lower rate. If this is not the case then you wouldn’t want to refinance.

 

This list is not all-encompassing, but these are major factors to take into consideration. If there is a something that you feel that I left out, please send me a message.

 

You can get a rate estimate from multiple companies in less than 15 minutes here. This will help you to determine if the monthly savings would be worth refinancing.

 

Thanks for your time,

Stephen

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Bulldog Advisors LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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