The cons of refinancing student loans
Since each borrower’s financial circumstances vary, you should also consider some of the cons of refinancing student loans before you make your decision. Some of these may include:
- Losing access to federal repayment programs – If you refinance your federal loans, you’ll lose access to federal repayment programs, including income-driven repayment plans, such Saving on A Valuable Education (SAVE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Public Service Loan Forgiveness (PSLF). For more information visit, https://studentloans.gov.
- Losing access to federal repayment protections – You’ll also lose access to federal repayment protections, such as forbearance and deferment, which can give you the opportunity to pause or lower your monthly payments under certain circumstances.
- It may be difficult to qualify without a co-signer – If you don’t have an established credit history, you might find it difficult to gain approval for refinancing without a co-signer.
- Interest rates might increase – When you refinance, you’ll be able to select either a fixed or variable interest rate. Variable interest rates, which fluctuate according to the market, have the potential to rise, which could result in you paying more over the lifetime of your loans.
- Ending your grace period early – Not all federal student loans have grace periods but for those that do, if you decide to refinance during your grace period, you may have to start repaying immediately.
Can refinancing help you pay down debt faster?
The short answer is—it could. By refinancing and shortening the term of their loan, borrowers can decrease the amount of time it will take them to pay it back. Note that this could result in your monthly payment going up. However, depending on the interest rate you qualify for, you may find this increase is negligible.
To estimate how much you could save by refinancing, check out our student loan refinancing calculator below.
