Be careful with your Federal Student Loans.
If 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.
Federal 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!