Refinancing Federal Student Loans May Have Negative Consequences

Be careful with your Federal Student Loans.

Paying Your LoansIf you’ve had federal student loans for a while, you might be tempted to refinance your loans. Before you refinance, here are some things to consider:

  • Federal student loans have some benefits versus a refinanced loan.
  • With federal student loans, you may qualify for smaller monthly payments based on your income.
  • You may qualify for deferment on your federal student loans if you have no income or very low income.
  • If you don’t qualify for a deferment, you may qualify for forbearance instead.
  • If you work in certain industries, you may qualify for loan forgiveness.

Deferments and forbearance options are very similar. With a deferment, you have a no-pay period that may stop accruing interest for that time. With forbearance, you have a no-pay period that still accrues interest. Both options require a financial hardship to be present in order to qualify.

The income-based repayment option may help many students and graduates. This repayment option your monthly payment would be about 15% of your discretionary income. If your monthly payments aren’t enough to cover interest, you may end up paying more on interest throughout the period of your loan repayments.

However, if you can’t pay the full monthly interest increase, the government may help pay the remaining interest.

Loan forgiveness is an option that many people hear about but only a few people qualify for. In order to qualify for loan forgiveness, you have to work in a community service program like AmeriCorps or work in certain professions in areas like health and education.

You may also qualify if you are in the military or live in certain states that offer to pay a certain amount on your loan for being a resident of that state for an extended period of time.

Refinanced student loans may lose these repayment options. Your lender of choice when refinancing will probably have a stricter repayment plan compared to the federal student loan lender.


But that’s not all.

Increasing InterestFederal student loan borrowers do have some benefits over a refinancing lender. However, there are a few more things to consider when looking at refinancing:

  • Federal student loans aren’t dischargeable when filing for bankruptcy.
  • Becoming delinquent on your student loans will have a negative impact on your credit.
  • Becoming delinquent may also result in a late fee.
  • Defaulting on federal student loans may cause the government to garnish your paychecks or tax refunds.
  • Defaulting may also result in you being sued.

No matter what you decide, make sure that you do not fall behind on your loans without contacting your lenders. Keeping in contact and keeping the lenders up to date on your financial situations will help with adjusting your monthly payments. This will also keep your credit from dropping after missing payments.


Deciding to refinance?

Keep all of these options in mind when thinking about refinancing your student loans. Remember what happens when you start falling behind on your payments. Make a sound decision when considering refinancing.

Have your student loans caused you financial hardship? Are you considering refinancing your student loans? Let me know in the comment section below.

If you’re looking for a way to help start paying off student loans, I recommend trying out affiliate marketing. With affiliate marketing, you can take your passion and turn it into a full-time online business.

One great way to learn about affiliate marketing is to join an online community. The community I’m a part of is called Wealthy Affiliate University. You can check out my review of Wealthy Affiliate University here.


That’s all for today.

Don’t forget to leave your thoughts and opinions below. I love getting the chance to read your responses. Also, share this post with friends and family that might find the information useful.

Thanks for reading!

8 thoughts on “Refinancing Federal Student Loans May Have Negative Consequences

  1. Nam - February 1, 2017

    Hi Nigel,

    Great way to show awareness of this topic for students. Many are falling into these traps and they’re sitting with the loan up to their neck. I hope many students are reading this site.

    Thank you for sharing,

    Nam

    1. Nigel - February 1, 2017

      Thanks for the comment, Nam!

      There are many students and graduates falling into great debt because of their student loans, that is true. I’m just glad that there are a few options to help out those that really need the help.

      Thanks again!
      -Nigel

  2. Sharon Whyte - February 1, 2017

    Great tips and things to look out for Nigel for your existing student loans. I never went to Uni here in Australia and am sure it is a little different in repayments etc than what you have stated here. But as you say, the Wealthy Affiliate platform is a great option to start and do ongoing to assist in paying off loans!

    1. Nigel - February 1, 2017

      I’m sure that Australia handles student loans in a different way. This information is definitely for those in the U.S. I’m not sure if this information will help anyone outside of the U.S. but if parts of it are relevant, great!

      And yeah, Wealthy Affiliate is a great platform for people to start their own online business. It’s great for newbies, too!

      Thanks for the comment, Sharon. I really appreciate it! 🙂
      -Nigel

  3. Andy - February 2, 2017

    Hi, Nigel. This is some great information here. There is a lot more to look at than just interest rates and reducing payments. It looks like federal loans provide a lot more options depending on your circumstances. With student loan debt at astronomical levels in the US, this information can help a lot of people.

    1. Nigel - February 2, 2017

      I do hope it can help many people. I know there’s not too much information on the whole aspect of student loans, but any bit of information should prove useful, right? lol

      Thank you for the comment, I really appreciate it.
      -Nigel

  4. Kathy - February 13, 2017

    Hi Nigel,
    You have shared some great information here. I am still paying off my graduate student loan, and the struggle is real. I did refinance once, that’s why I am still paying…it’s a vicious cycle.
    I have heard in some cases, student loans may be forgiven if the person is permanently disabled. Do you have information in regards to this?
    Thank you!
    Kathy

    1. Nigel - February 13, 2017

      Hey, Kathy!

      That’s a very good question. In fact, there is a way for people with permanent disabilities to be forgiven for their federal student loans.

      What you’re looking for is a Total and Permanent Disability (TPD) discharge. Here’s a great article on the subject from the Federal Student Aid office of the U.S. Department of Education: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/disability-discharge

      The post has some really great and thorough answers for most questions you might have regarding what it takes to be forgiven on a student loan due to a disability.

      Thanks for asking the question, Kathy! I’m sure many people will find this information useful. 🙂

      -Nigel

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