The Pros and Cons of Refinancing Your Student Loans… (And Doing So Again)

Update 1/24/21: With the current pause to federal student loan payments and interest accrual due to the COVID-19 pandemic, if you still have federal student loans, you likely want to HOLD OFF on refinancing your student loans with a private company until this is no longer in effect.

After graduating from PA school, I elected to refinance and consolidate my student loans from both undergrad and PA school (which were originally federal student loans) with a private lender. This was appealing for several reasons, which will be discussed below. However, there are some potential cons of doing this that one would need to consider when switching from federal loans to private loans. 

Some Pros of Refinancing Student Loans with a Private Lender

The Ability to Choose Some of the Aspects of the Loan Terms 

The private lender that I picked had several loan options for me to choose from, including the ability to pick how many years I wanted to pay back my loan, as well as being able to choose from fixed versus variable interest rates based on the length of the loan that I settled on. 

The Benefit of Saving Money with a Lower Interest Rate

This was the biggest motivating factor for me to refinance my loans. I was able to lock-in a lower interest rate, which has saved me several thousands of dollars over the course of several years.

The Ease of Having all the Loans with One Company 

After PA school, I had a small amount of loans from undergrad, in addition to a large amount of loans from PA school. Once I refinanced, the lump sum of my student loans was all in one easy, convenient location with the same company. 

Some Cons of Refinancing Student Loans with a Private Lender

The Surrendering of Eligibility for Income-Driven Repayment Programs

Having federal student loans allows you to still qualify for possibly several income-driven repayment programs (such as PAYE, REPAYE, IBR Plan, and ICR Plan). However, even the salary of a PA right out of school would be considered a pretty high income, so many PAs may not need to use these options. A PA career also should be considered an in-demand, reliable career, which helps mitigate the risk of not being able to make payments with set amounts. However, during rare unprecedented situations such as the COVID 19 pandemic, even PAs can be furloughed. If other similar pandemics were to occur in the future though, many loan companies will work with their borrowers to provide some flexible payment options.

The Lack of Flexibility of Being Able to Adjust Monthly Payment Amounts 

Once you refinance with a private lender, you are obligated to make the monthly payments. The exception of course is that you may always pay more than your minimum requirement. This would allow you to pay off your loan sooner. If you were to keep federal loans, you would be to participate in an income-driven repayment program as mentioned above. So, if your income increases, you would pay more. Conversely, if your income decreases, you would pay less on your monthly student loan payment. 

The Loss of Qualifying for PSLF (Public Service Loan Forgiveness) Program

If you elect to work for a qualifying governmental organization or a not-for-profit, you may be eligible to have your student loan forgiven. To qualify for PSLF, you would need to work full-time for 10 years and make 120 qualifying payments. The government has been discussing canceling this program, so there is no guarantee that this program will benefit you. However, if you decide that pursuing this option is right for you, I’d suggest making the minimum required qualified payments, in addition to setting aside money each month into a separate account to save enough money that will add up to pay off your loan over the years (ideally within 2 – 5 years by living frugally, but definitely within the 10 years). Then, if for some reason you do not qualify for PSLF at the end of the 10 years, you would have that chunk of money set aside to pay off the loan anyway!

The Requirement of Having a Great Credit Score

Many private student loan lenders require their borrowers to have great credit scores. If you have not had the chance to build credit, or if you have a poor credit score, you may need to stick with federal loans. 

You have now had the chance to consider some pros and cons of refinancing your student loans with a private lender. As the title of this article implies, I have actually refinanced my students loans twice! The first time was shortly after I completed PA school. The second time was almost 6 years after PA school. I was able to obtain a lower interest rate each time, which allow me to save thousands of dollars each time! SoFi was the company that was used both times, and I would recommend them if you are looking to refinance through a private lender. In fact, my interest rate dropped by 2.27% the second time that I refinanced with them! If you would like to apply for a student loan refi with SoFi, use the link below, and as of 5/3/201, we each would get $10 for you checking your student loan rate, and then each another $300 when you fund your student loan through SoFi!  

Disclosure: This link is a referral link, and I would receive a small commission if you choose to refinance your student loans with SoFi. 

Click here to receive $$$ back from SoFi.