Should you refinance your student loans during COVID-19?
If you have student loans, the COVID-19 pandemic has offered a temporary reprieve as federal student loan payments and interest have been suspended again through December 31, 2022.
If you’re considering refinancing your student loans, you should carefully weigh the pros and cons and consider factors such as whether your debt is federal or private, your personal situation, and your overall financial health both today and beyond the pandemic. Understanding what’s at stake can help you develop a plan that makes sense for you, both now, and when federal relief ends.
The pros of refinancing your student loans now
Now is a great time to refinance your private student loans:
interest rates are at near-historic lows and the Federal Reserve has said that it will keep rates close to zero through 2023. If you took out a private loan years ago when interest rates were higher than today, or your credit score is better now than when you applied for your last loan, this is a great opportunity to improve your financial position by locking in a low fixed rate offer. Variable rates can also be an attractive option in a low-rate environment, but it’s important to keep in mind how a variable rate will affect your payments in the future when rates fluctuate. In addition to securing a lower rate, refinancing your student loans with a private lender like Laurel Road can offer you discounts that could lower your interest rate. Laurel Road may offer a 0.25% autopay interest rate discount1 and an additional discount of up to 0.55% off your refi rate when you open a Laurel Road CheckingSM account during refinancing and set up qualifying monthly direct deposits.2 Other student loan refi features include flexible repayment terms, the ability to sign with a co-signer (and later release them), economic hardship payment options, and even a $400 cash bonus when you refer a friend.3
To illustrate the potential savings, if you owe $120,000 with 10 years left on a 15-year private loan taken out in 2016 at 7%, and you’re able to refinance at a rate of 3.9% into a 10-year loan, your monthly payment would drop from $1,385 to $1,209, saving you $176 each month and a total of $22,500 over the life of the loan. Alternatively, you could shorten the term for this same loan to 7 years and save $32,600 over the life of the loan. These are just two examples of what’s possible – right now, you have the opportunity to craft a loan that suits your needs and could save you money.
The cons of refinancing student loans during Covid-19
If you have federal student loan debt, refinancing to private debt means you will no longer enjoy benefits including, but not limited to, the temporary payment suspension and a 0% interest rate, income-driven repayment plans, Public Service Loan Forgiveness, federal forbearance, or any other benefits that may be offered to federal borrowers now, or in the future. If you’re worried about your finances or your job, the potential impact of losing these benefits should be carefully considered before refinancing. If your finances and job are stable, the appeal of the money you could save might outweigh the advantages of the safety provided by Federal benefits.
The bottom line
When deciding whether or not to refinance, a good rule of thumb
is to only consider refinancing your federally held loans if you’re willing to let go of the government protections offered. If you’re currently benefitting from the temporary relief or other federal benefits, it’s probably best to hang on to those loans for now. However, if you have private student loans with rates higher than you currently see advertised, now might be an ideal time for you to refinance. With no hard credit pull required, you can easily check your rate estimate.4 You could qualify for a lower interest rate, a lower monthly payment, or both.
Finally, regardless of whether you currently hold federal or private loans, if you’re looking to chip away at your student loan debt a little bit quicker, the new Laurel Road Student Loan Cashback® card could help you do that. With every dollar you spend on everyday purchases, it’s the only card that lets you redeem 2% cashback towards any eligible student loan.5 For more details, click here.
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- AutoPay/EFT Discount: if the borrower chooses to make monthly payments automatically by electronic fund transfer (EFT) from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the borrower’s bank account. The 0.25% AutoPay/EFT Discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.
- The Laurel Road CheckingSM discount is available to borrowers who open a Laurel Road CheckingSM account simultaneously while refinancing their student loans with Laurel Road. You may also be able to utilize a checking account opened simultaneously with a prior Laurel Road student loan refinance to obtain a discount on your new Laurel Road student loan refinance. Borrowers will receive a 0.25% interest rate discount for their first three monthly billing cycles. Starting with the 4th billing cycle and continuing with each billing cycle thereafter, the interest rate discount applied each billing cycle will be based on the amount deposited via qualifying Automated Clearing House (ACH) transactions into the Laurel Road CheckingSM account during the preceding calendar month–0.25% for deposits between $2,500 and $7,499 per month and 0.55% for deposits $7,500 or greater per month. To continue to receive the discount for the 4th billing cycle, you must begin making qualifying ACH deposits to your Laurel Road CheckingSM account during the second month after your loan funds. Note that the discount is only available to the primary checking account owner and is not available to a joint checking account owner. If the primary account owner is no longer an owner on the checking account or the account is closed, the discount on their student loan will cease. Discounts subject to change without notice and cannot be combined with the Linked Savings discount. Click here for more information on the Laurel Road CheckingSM Account.
- Referrers must have a log in credential for Laurel Road’s Online Banking in order to participate in Laurel Road’s Referral Program. A log in credential is created during the application process for a Laurel Road product or can be created at any time if you have an existing Laurel Road product. Laurel Road will provide a “bonus” of $400 for each new qualifying Laurel Road Student Loan Refinance Loan, Laurel Road Personal Loan, or a Laurel Road Student Loan Cashback Card (as defined in https://www.laurelroad.com/refer-a-friend/#disclaimers), which, at the option of the referrer may be split between the referrer and the referred. Any amount to be paid to the referred individual will be determined by the referrer prior to sharing their personal referral link with the referred.Participating referrers may receive up to ten (10) bonuses per calendar year for all qualifying Laurel Road Student Loan Refinance loans, Laurel Road Personal Loans, and Laurel Road Student Loan Cashback Card referrals made during the year. To learn more about our Referral Program please visit https://www.laurelroad.com/refer-a-friend/#disclaimers.
- Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
- You will earn 2.0% in Cashback Rewards for each $1 spent on eligible Purchases if you redeem your Cashback Rewards towards your Student Loan with an eligible servicer. This equates to $0.02 in Cashback Rewards, for each $1 spent. For example, if you spend $100, you will earn $2.00 in Student Loan Credit. You will earn 1.0% in Cashback Rewards for each $1 spent on eligible Purchases if redeemed for a statement credit. This equates to $0.01 in Cashback Rewards, for each $1 spent. For example, if you spend $100, you will earn $1.00 in Cashback Rewards. Cashback is awarded based on eligible credit card purchases excluding transactions such as cash advances of any type, balance transfers, convenience check transactions, overdraft protection transfers and quasi-cash transactions. For Terms & Conditions and a full list of eligible loan servicers, visit laurelroad.com/cashbackcard-servicers.