If you are one of the 43.6 million borrowers with federal student loan debt, you may be seeing advertisements and suggestions to refinance your student loans. Refinancing student loans is a financial strategy that can help borrowers manage their loans more effectively, but it’s important to understand the pros and cons before making this decision.

What is refinancing and would it be beneficial to you? Here’s what you need to know.

What is student loan refinancing?

Student loan refinancing means a private lender pays off your existing loan, then gives you a new loan with new terms. This can provide an individual with a longer repayment term — with lower monthly payments — or it can mean the individual pays less over time from a lower interest rate (or both!).

See Also: As a Doctor, Should I Refinance My Student Loans?

Cons Of Refinancing Student Loans

For this pros and cons list, we wanted to start with the cons because refinancing without fully understanding the potential limitations of this student debt management option can have big repercussions when it comes to repaying your loans. Be sure you have thoroughly analyzed the drawbacks of this option before utilizing it.

• Loss Of Federal Benefits: The biggest drawback to consider when thinking about refinancing student loans is the loss of federal benefits. If you have federal student loans, refinancing them with a private lender means no longer having access to federal benefits like Public Service Loan Forgiveness, income-driven repayment plans, other loan forgiveness programs, and deferment or forbearance options.
• Credit Check & Eligibility Criteria: To qualify for refinancing, you’ll need a good credit score and a stable income. If your financial situation has deteriorated since you first took out your loans, you may not meet the eligibility requirements for refinancing.
• Shorter Loan Terms: Many private lenders offer shorter loan terms, which can lead to higher monthly payments. While this can save you money in interest over time, it may be challenging for some borrowers to manage these increased payments.
• Fees & Costs: Some lenders charge fees for refinancing, which can offset the benefits of a lower interest rate. It’s essential to carefully review the terms and conditions of any refinancing offer and calculate the total cost of the loan, including fees.

Pros Of Refinancing Student Loans

If you are not pursuing PSLF, utilizing an IDR plan, or wanting to keep federal loans for another reason, here are some reasons you may want to refinance your student loans.

• Lower Interest Rates: One of the primary motivations for refinancing student loans is to secure a lower interest rate. If you’ve built a strong credit history or market conditions have changed since you first took out your loans, you may be eligible for a more favorable interest rate. A lower rate could save you thousands of dollars over the life of your loan.
• Reduced Monthly Payments: Lowering your interest rate can lead to reduced monthly payments, which can make your budget more manageable. This can free up funds for other important expenses or savings goals.
• Simplified Repayment: Refinancing can streamline your loans by combining multiple loans into one. This simplifies your finances and reduces the number of payments you have to make each month. Additionally, you can choose a new loan term that suits your financial situation.
• Fixed Interest Rate: Some federal student loans have variable interest rates that can change over time. When you refinance with a private lender, you can often choose a fixed interest rate, providing more stability and predictability in your monthly payments.
• Potential for Cosigner Release: If you initially needed a cosigner to qualify for your student loans, refinancing may allow you to release your cosigner from the obligation, provided you have a strong credit history and financial stability.

Ready to refinance?

Refinancing student loans can be a valuable financial strategy for many borrowers, particularly those with high-interest rates, strong credit, and the ability to make higher monthly payments. However, it’s crucial to consider the potential drawbacks, especially the loss of federal loan benefits and loan forgiveness programs.

Panacea Student Loan Refinancing is built specifically for doctors with transparent rates, no loan maximums, in-house servicing, and 24/7 customer support. Explore student loan refinancing with Panacea Financial.