September 2021 Volume LVI Number 5

 
 
 
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AAPD Member Benefit Spotlight

May 2021 Volume LVI Number 3

Is Now the Time to Refinance your Private Student Loan?
 
Many borrowers are considering their student loan options in light of historically low interest rates, federal student loan pay- ments on pause at least through September 2021, and discus- sion of student loan forgiveness by both parties.
 
With so many factors swirling around, it can be tough to decide how to handle your student loans. That’s because there is no one "right" answer.
 
The era of low interest rates means that a holder of private stu- dent loans could get a lower rate than before, making refinanc- ing attractive.
 
SoFi and AAPD partner to offer student loans resources and refinancing through SoFi.com/AAPD. Here’s what to consider about refinancing student loans.
 
Should Private-Loan Holders Refinance?
In September, the Federal Reserve pledged to keep interest rates near zero for the foreseeable future as an economic recov- ery aid. That led many private lenders to follow suit and lower their interest rates, but private lenders have slowly been raising rates since the start of 2021.
 
Borrowers can check current rates for refinancing—replacing multiple student loans with a single, new private loan with a single monthly payment. They’ll save money if the new loan has a lower interest rate.
Refinancing may make sense if:
  • You have private student loans or a combination of private and federal student loans and can gain a lower rate (just realize that refinancing federal loans to a private loan would remove the current pause in payments and interest accrual, and federal student loan forgiveness, if it comes to fruition, as well as federal income-driven repayment plans and forgiveness programs).
  • You have a stable income.
  • You have good or excellent credit.
  • You have access to a co-signer who meets those criteria if you do not.
 
With refinancing, it’s important to understand the fine print of the loan, including any hidden or stated fees, prepayment penalties, or other factors that may increase the cost of the loan over time.
 
You also may need to decide whether to choose a variable or fixed rate.
 
  • Fixed-rate loans lock in the rate once you agree to the terms of the loan, so you’ll pay the same interest rate for the life of the loan, regardless of how interest rates rise or fall.
  • Variable-rate loans have a rate that changes based on the market. A variable rate may start low but climb, sometimes up to a cap. Your bill will change, making it more difficult to budget the payments. And providers may have a different schedule for changing rates: Some may be every month, some every quarter.
When deciding on a rate structure, considerations include the life of your loan (a longer loan term may mean more interest variation over time, including periods of higher interest), your budget, and what makes sense for your overall financial strategy.
 
Should Federal Loan Holders Refinance?
It’s important for Federal borrowers to know that their required monthly payments have been paused and those loans are ac- cruing zero percent interest through Sept. 30, 2021.
 
The Department of Education folks like a different word: consolidate. In general, federal consolidation may lower your payments by extending the loan term (up to 30 years), but the amount of interest you pay will increase.
 
A Direct Consolidation Loan consolidates multiple federal education loans into one federal loan, resulting in one monthly payment. It does not include any private student loans you have.
 
The interest rate on a Direct Consolidation Loan is the weight- ed average of your current federal student loan interest rates, rounded up to the nearest eighth of a percentage point. It’s a fixed rate.
 
Will a federal consolidation loan approved during the COVID- related "administrative forbearance" be placed in the paused- payment, zero-interest program? Yes.
 
Could I Get Loan Forgiveness If I Refinance?
This is a big question that doesn’t have a clear answer. Presi- dent Joe Biden, as well as other politicians, support federal stu- dent loan forgiveness.
 
Biden has called on Congress to cancel $10,000 in federal student loan debt, but he hasn’t said whether he would expand that forgiveness to private student loan debt.
 
As of now, if you’re refinancing just private student loans, fed- eral loan benefits don’t apply to your situation. If loan forgive- ness did expand to private student loans, then refinancing may have allowed you to save money on interest in the meantime. In other words: It can be a good idea for borrowers to look for windows of opportunity today instead of waiting for the future, when interest rates may rise.
 
The Takeaway
Is now a good time to refinance student loans? If you have pri- vate student loans and can get a lower rate, it may make sense to do so. Understand any fees, prepayment penalties, and pro- tections such as forbearance before you sign an agreement.
 
Refinancing student loans with SoFi involves no application or origination fees and no prepayment penalties.
 
Plus, AAPD members receive a 0.125 percent interest rate discount when they start their applications through SoFi.com/AAPD.
 
Simply register and share a little information, and view rates you might qualify for. (Checking your rate will not affect your credit score.*) Then use a student loan refinancing calculator to get an idea of how much you could save before you apply.
 
*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
 
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636Opens A New Window. . For additional product-specific legal and licensing information, see SoFi.com/legal.
 
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UN- TIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDER- ALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPEN- SION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
 
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program of- fers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
 
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objec- tives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.