Think twice before refinancing a student loan


Low rates make many people consider refinancing their mortgages and other debts. But one type of debt that you shouldn’t be touching right now is federal student loans.

Refinancing a student loan could help borrowers lower their monthly interest rates, lower their monthly payments, and pay off their loans faster. However, borrowers who refinance a federal student loan with a private lender lose the consumer protection and repayment programs offered by federal loans, including income-based repayment and loan cancellation.

Now is a particularly bad time for federal loan holders to consider refinancing, as payments and interest on many of these loans have been automatically suspended, at least until January, due to relief efforts. the pandemic. This break has been extended twice, and it is possible that there will be another extension under the new administration.

Borrowers who refinance these loans with a private lender, however, would no longer benefit from the break. They would also lose the opportunity to have some or all of their federal debt canceled. There are several proposals on the table that would do this, but it’s still unclear how that will play out after President-elect Joe Biden takes office. Democratic leaders are asking for $ 50,000 of loan cancellation per borrower, while Mr. Biden discussed the $ 10,000 forgiveness.

Federal loan borrowers “should not refinance their federal education loans until more details are available on the loan cancellation proposals being discussed in Washington,” said Charlie Kelley, executive director from the Rhode Island Student Loan Authority, a quasi-state, nonprofit authority that provides affordable loans and free financial aid advice to families.

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