Should I Refinance My
LOANS?
STUDENT
3 reasons you shouldn’t refinance your student loans
Weigh these 3 pros and 3 cons before deciding whether you should take action. by NEA Member Benefits
W
ondering if it makes financial sense to refinance your student loans? Three in 10 borrowers say they’ve either consolidated or refinanced their student loan debt. According to the most recent data available, the average amount of student debt currently adds up to $29,200 for most college graduates, and $55,200 for those completing a master’s degree in education. There can be sensible reasons to refinance, but there are also wise reasons not to do so, as well. That’s why it’s so important to fully evaluate the potential advantages and drawbacks. Your goals should be to determine whether refinancing will save you enough money to make the process worthwhile and to ensure you won’t be giving up valuable benefits associated with your current loan programs. COVID-19 UPDATE: Measures taken by the Department of Education (DOE) and through the CARES Act in March 2020 provide student loan debt relief to borrowers with federal student loans. Interest rates are dropped to 0% and payments are suspended through Sept. 30, 2020. Educators who are pursuing a federal loan forgiveness program should be aware that some, but not all, borrowers may still receive credit toward forgiveness during payment suspension, but check to see if your situation applies. If you’ve recently experienced income loss due to coronavirus, check this new tool from our partners at Savi to see what options you may have. Note that those relief options don’t apply to private student loan debt. Because the coronavirus situation and stimulus efforts are still developing, be sure to keep an eye out for any possible additional relief measures before making your refinancing decisions. With all of that in mind, you can assess these pros and cons to help make the best choices for your situation.
First, let’s assess some scenarios in which refinancing may not be the best choice: 1. You may qualify for federal loan forgiveness programs. If you refinance a federal loan into a private loan, you’re no longer eligible for federal loan forgiveness, and you may also forfeit deferment and forbearance options. That’s an important distinction if you’re a public-school educator, because you may qualify for partial or entire forgiveness of your federal student loans through Teacher Loan Forgiveness, Public Service Loan Forgiveness or Teacher Loan Cancellation. The NEA Student Loan Forgiveness Navigator, powered by Savi, can help easily and accurately assess whether you qualify for free federal forgiveness programs, depending on your current situation. In addition, almost every state offers a forgiveness program—and many have several, typically requiring work in an underserved community or profession for a certain number of years. 2. You’re interested in a repayment plan based on income. If you have federal student loans, you may qualify for an income-driven repayment plan that sets your monthly payment based on a percentage of your income and family size. Private student loans don’t offer income-driven repayment plans. Four plans apply to federal student loans: • • • •
Revised Pay As You Earn Repayment Plan Pay As You Earn Repayment Plan Income-Based Repayment Plan Income-Contingent Repayment Plan
Under these options, you may qualify for lower payments—or even be able to defer payments until you’re more financially stable. The NEA Student Loan Forgiveness Navigator, powered by Savi, can help you assess your repayment plan options.
24
Maine Educator • September 2020
