Most borrowers don’t think about their student loans. They know this is a debt they eventually pay off, and in the meantime they have learned to live with less. While we like the idea of living within your means, we do like to have more options.
Refinancing is one of those options, especially for folks living from paycheck-to-paycheck who would appreciate lower monthly payments towards their student loan repay. But when it comes to student loan refinancing, there are many misconceptions and myths circulating around the web that stop borrowers from taking that route. Here, we want to demystify five of the most “popular” student loan refinancing myths, so — without further ado — let’s roll…
Also read: 7 Questions to Ask When Choosing a Lender to Refinance Your Student Loans
Myth #1: Student loans can’t be refinanced
In other words, many borrowers think they are stuck with their current loans and that refinancing is the option for other types of loans, like mortgages. They just “set and forget” their student loans and “live with it.”
This is not true!
Like pretty much any other debt, you can refinance your student loan if that makes sense for you. And it could make sense if your income has dropped or your expenses have grown, and now you need more cash every month.
Nothing stops you from checking whether you qualify for refinancing or not. And what kind of rate you can get.
Also read: How to Get the Lowest Rate When Refinancing Student Loans
Myth #2: You have a high student loan balance and refinancing could do little for you
It all depends on the interest rate you agreed upon when taking your student loan. Today the rates are close to historic minimums, giving former students space for refinancing. And savings on the amount of interest paid to the lender.
Many of today’s lenders are willing to refinance big loans so don’t worry about it. If they can refinance a mortgage, they can also “handle” your student debt.
Myth #3: Federal loans are preferable to private loans
This could be true if you are working in the public sector, but other than that — there are no differences between loans issued by the government and private companies.
Under the Public Service Loan Forgiveness Program (PSLFP), your Direct Loan balance may be eligible for forgiveness after 120 payments if you’ve worked in the public sector that entire time. In other words, after 10 years of work (in the public sector) — you MAY be able to benefit from the loan forgiveness.
In the eyes of many lenders, federal and private student loans are treated the same.
Myth #4: You should not refinance federal loans with a private lender
Not true. A loan is a loan, and again — if you’re not working in the public sector, you won’t get any benefits mentioned in the previous point.
Also mentioned is that many lenders will take both private and federal loans, and help you get your finances in order.
For instance, SoFi — our lender of choice — offers refinance loans with variable rates as low as 2.93% APR and fixed rates as low as 4.99% (with AutoPay).
Myth #5: Only federal loans include some borrower protections
It is true that most private lenders don’t offer the same protections that the federal government does, such as forbearance, lower payments, and even loan discharge in extreme circumstances. However, some of the newer companies, like SoFi, will support borrowers during unexpected financial hardships.
Whichever lender you should, you should ask what happens if you lose a job. Is there some support included? You don’t want to see your debt climbing when you can’t make regular monthly payments.
Conclusion
There are many other myths we’ve heard during the years, but these were the top 5 we could think of.
Refinancing is not for everyone, but it could work like a charm for some folks. It has a few benefits, including the convenience of consolidating multiple student loans into one monthly payment and the flexibility to choose between a fixed or variable rate — but it could also make your debt higher. Or not, based on your original student loan’s terms. You should ask to find out.
Again, we strongly recommend SoFi — see what they can offer for you and only if you like what you see, go for it.