Refinancing can cut what you pay on student loans. It can also cost you protections you’ll wish you had later. Ask yourself these five questions before you apply.

1. Are my loans federal or private?

This is the big one. Refinancing federal loans into a private loan ends your access to federal programs, including income-driven repayment, federal deferment and forbearance, and Public Service Loan Forgiveness. You may also lose discharge if you die or become permanently disabled, though many private lenders offer it. And once it’s done, it can’t be undone.¹

Private loans are a different story. You have no federal benefits to lose, so refinancing is mostly a question of price.

2. Could I qualify for forgiveness?

If you work for a government agency or a 501(c)(3) nonprofit, you may be on track for Public Service Loan Forgiveness, which can wipe out the rest of your federal Direct Loans after 120 qualifying payments.² Refinancing those loans would take you out of the program.

3. Is the new rate fixed or variable?

Many private loans have variable rates. Your rate and payment could rise, possibly above the fixed rate you have now.¹

4. Am I saving money, or just stretching it out?

The lowest rates usually come with shorter terms and higher payments. A longer term lowers the payment but raises total interest.¹ Our refinance calculator shows both.

5. Will I lose the interest deduction?

If you combine student loans with other kinds of debt, the new loan may not qualify for the student loan interest tax deduction.¹

The bottom line

Private loans at a high rate? Refinancing is worth a look. Federal loans, especially if you work in public service or your income is shaky? Be very careful, and run the numbers first.

Have private loans? Check your student loan refinance rate (paid link)

Sources

1. Should I consolidate or refinance my student loans?, Consumer Financial Protection Bureau.
2. Tackling the Public Service Loan Forgiveness Form, Federal Student Aid.

Advertiser disclosure: Personal Loan Time may earn a commission when you click some links on this page. That never changes what we say. We are not a lender, and this isn’t financial advice.