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Should I Refinance My Student Loans?

Key Takeaways

  • Refinancing your student loans could combine them into a single payment, as well as lower your interest rate and/or monthly payment.
  • Make sure you’re comfortable forfeiting the benefits of federal loans if you choose to refinance with a private lender.
  • Unlike federal loans, the interest rate on a private loan is determined by your credit score.

If you’re like most people, student loans are a hindrance.

Monthly payments can hamstring your budget to the point that it keeps you from saving for other goals, like booking a vacation or major purchases like a car or home.

Check out the tables below to learn about the potential benefits of refinancing your student loans.





Potential benefit

What to think about

Lower interest rate

  • You can switch from a fixed rate to a variable rate, or vice versa.
  • Variable rates can change, so your monthly payments will go up or down with your rate.

Reduced monthly payment

  • A lower interest rate and/or longer repayment period could lower your monthly payments.
  • A longer repayment period could result in paying more interest over the life of the loan and may have a higher interest rate. Before deciding, check if there’s a penalty for making payments ahead of schedule.

Lock in a fixed rate

  • A fixed-rate loan means a consistent monthly payment (as opposed to a variable rate that can fluctuate).

Refinance multiple loans into a single loan

  • Combining your student loans allows you to make a single monthly payment.
  • The interest rate on a new private loan can be determined by a number of variables, like your credit (or the credit of any co-signer) and your income.

Repay your loans faster

  • If refinancing decreases your interest rate, you could continue paying the same amount as before. That just means more of your payment will go toward the principal.
  • Don’t forget to double check to see if there are prepayment penalties

Gain financial independence by removing your co-signer

  • Releasing your co-signer removes their financial obligation to step in and make payments in the event you cannot do so.
  • However, if your co-signer has better credit than you and you choose to refinance without their help, your new loan could have a higher interest rate and a higher monthly payment.

What to know when refinancing federal loans

When you refinance, you waive any current and future benefits of your federal loans and replace those with the benefits of your new refinance loan. For this reason, it’s important to make sure you’re okay with losing any benefits that are unique to your federal student loans.

Remember that you can choose to refinance your federal and private student loans separately. To keep your federal loan benefits, you may prefer to consolidate your federal student loans through the federal government. Then, you could refinance your private student loans with a different private lender. However, refinancing both loan types together gives you the benefit of a single monthly payment.

The following is a list of benefits that are typically found in federal student loans.

Potential federal loan benefit

What to think about

Income-based repayment

  • Some federal student loans entitle you to a lower monthly payment if you have a low income.
  • Private lenders do not offer income-based repayment, so if this benefit is important to you, consider consolidating your federal loans with the federal government.

Loan forgiveness for borrowers in certain public service jobs

  • Borrowers in certain types of public service jobs (government jobs, teaching, the military, AmeriCorps, Peace Corps, and many other non-profit jobs) may be entitled to have significant portions of their federal loans forgiven.
  • Most private lenders do not offer loan forgiveness.

Military benefits

  • Active duty military personnel are eligible for several federal loan benefits. However, some private lenders also offer military deferment and an interest rate cap.

Longer medical and economic forbearance plans

  • These plans may excuse repayment of federal loans for up to 24 months in the event of medical or economic hardship, which is more than what private lenders offer.

Consolidate at your existing interest rates

  • If your interest rates are currently lower than what a private lender offers, you would benefit from consolidating your federal loans through the Federal Direct Consolidation Program, where your new rate is an average of your current rates.

Defaulted loan options

  • You have options to remedy any defaulted federal loans, such as rehabilitation, consolidation, or repayment in full.
  • Many private lenders do not make defaulted loans eligible for refinance.

Employee repayment benefits

  • Some employers, including certain public agencies and the military, include payments on federal student loans in their employee benefits package.

Loan forgiveness (if your school closed or committed fraud related to your loans or educational services)

  • In rare circumstances, federal loans may be forgiven by the Department of Education if your school has closed or if you were defrauded by your school.
  • Note: By refinancing federal loans into a private refinance loan, you waive any federal loan forgiveness rights and benefits you previously had.

What to remember

Fortunately, refinancing your student loans could provide some financial relief. Potential benefits to refinancing include a lower interest rate and/or lower monthly payment.

Compare your current loans with a refinance loan and determine what’s best for you. After all, each loan could have varying benefits, especially if your current loans are federal.

More information

To learn more about the Citizens Bank Education Refinance Loan® and the benefits of refinancing, call 1-877-405-2262 to speak with one of our Student Lending Specialists.

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