If you're considering refinancing your student loans during COVID-19, you should carefully weigh the pros and cons and consider factors, including federal student loan relief.
Published December 22, 2021
14 min readIf you have federal student loans, the COVID-19 pandemic has offered a temporary reprieve as federal student loan payments and interest have been suspended. For more details and the most up-to-date status of the federal student loan repayment pause, visit studentaid.gov.
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.
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.
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.
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.
Disclaimers
In providing this information, neither Laurel Road or KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
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