Many people are worried the government will do away with PSLF midway through their qualifying repayment and, as a result, they will lose forgiveness benefits. They feel it’s risky to count on something that could be taken away at any time, and that if PSLF doesn’t come through, they will be faced with a much bigger problem than they short term payday loan Petersburg Virginia started with. If this is a concern you have, you should read this article from Jan Miller.
If you aren’t going for student loan forgiveness, your next consideration should be student loan refinance. Many people today pay thousands more in student loan interest than is necessary.
Until recently, there wasn’t much to do about it. But, fortunately, in the past few years, several legitimate lenders have started offering much better deals on your medical school loans. Before you sign on the dotted line, though, there are a few potential downsides to consider as well. Private lending is like the Wild Wild West compared to federal medical school loans.
What Is A Student Loan Refinance?
Student loan refinance is where you pay off one or more old federal or private student loans with a completely new private loan. This differs from consolidation because you receive entirely new terms that have nothing to do with the underlying loan(s). You typically qualify for refinance based on your financial situation, so you must be considered low risk to the lender in order to receive a good offer.
Keep in mind you do not have to refinance all of your student loans. It’s easy to pick and choose which loans you want refinanced. The most common reason for refinancing is to lower your interest rate.
Before you waste any time looking into student loan refinance, take an honest minute to reflect on your finances. If you’re a wreck financially, odds are that private lenders will decline your application. Even if you could find a lender, you probably shouldn’t refinance any federal loans when your finances are weak.
Do you own long term disability and life insurance? Take this into consideration, as many private loans come with weaker protection for disability and/or death than federal loans.
Next, analyze your potential new loans. Find the lenders that are likely the best fit. Learn about a potential lender’s financial standards, loan options and terms. And read the promissory note this document will outline the terms and conditions.
Run through various worst case scenarios and determine how the loans compare in each. Consider situations such as a job loss, early loan repayment, death, disability, or another major financial hardship. Federal student loans, for example, typically offer flexible options during financial hardship (forbearance, etc). Private lenders generally aren’t as generous with these types of benefits. If you were in a bad spot financially, could you keep up with the refinanced student loans payments?
Be especially cautious about forfeiting Public Service Loan Forgiveness (PSLF) eligibility with federal student loans. Once you refinance, this option is eliminated for good. If there is any chance that you may be eligible for loan forgiveness, you should avoid refinance. Also, if you’re spouse is going for PSLF, use caution. Refinancing federal loans into private can ramps up your spouse’s IDR payments.
Student loan refinance most commonly provides value when you have an existing student loan that can be refinanced into a new loan with the same terms, no closing costs, and a significantly lower interest rate. This refinance becomes an instant financial benefit.
Also, medical residents who plan to work in for-profit employment should put much consideration into refinancing their medical school loans. There are programs available from DRB and LinkCapital that allow medical residents to refinance and make very low payments while in training (similar to income-driven repayment). This isn’t always an easy ple if your income is low and your balances are high, RePAYE can offer lower effective rates than Refinance. Also if you have lots of uncapitalized interest, your effective rate can actually be much lower than the stated rate.