Flickr user Michael Coghlan
The main reason borrowers choose to refinance their loan option is to negotiate new terms with the refinanced loan. Some borrowers choose to refinance to take advantage of current lower interest rates. Others may choose this option because are struggling with their existing loans and looking for a way to lower their monthly payments. Refinancing is a smart option for the above reasons. However, should be aware of the drawbacks associated with refinancing federal loans with a private lender.
Federal Loan Benefits
Federal loans offer more flexible payment options. They also offer attractive forgiveness options for qualifying borrowers. When you refinance your federal loans with a private lender, you are in effect relinquishing your federal student loans and taking on a brand new private student loan. In doing this, you will lose the benefits and protections associated with your federal loans. This means you will no longer be eligible for forgiveness or for choosing any flexible repayment plans.
Should You Refi with a Private Lender?
So should you or should you not refinance your federal student loans with a private lender? The right choice depends on your financial circumstances and your goals. If you are looking for lower interest rates or lower monthly payments, refinancing with a private lender is a great option. However, if you qualify for forgiveness and think you may want to avail of this option, then you should definitely not contemplate refinancing your federal loans with a private lender.
