The average amount of loans for students graduating continues to rise every year. This year the average came out to about $35,000, an average higher than it has ever been. There is an option to refinance your loans to those of lower interest rates to help you better manage your debt. This would mean that if your interest rate is lower, than your monthly payment will also decrease as well as what you will pay over the life of your loan.
This may seem like a great idea but there are consequences to this option because the if you do choose to refinance your loans into private loans, you lose privileges and protection you had with federal loans. For instance, loan forgiveness, deferment and income-baed repayment protections. This could hurt you in the long run even though you lower the interest rates and monthly payments on those loans.
Loan forgiveness is a huge benefit because if you are employed full time in an eligible pubic service or non-profit job and have made 120 on time payments on your federal loan then the government will forgive you for the remainder of your student loan. Deferment options with federal student loans can give you more time before you have to start paying them back. If you are unemployed, facing economic hardships or are serving in the U.S. Army, you can qualify for deferment options. Income-based repayment allows you to choose a repayment plan according to your income. If you are employed but are not earning a high salary, you can qualify for immediate relief.
If you decide to refinance, you will most likely lose all of the benefits mentioned above, so chose wisely. Refinancing ale requires a credit score no lower than 640. Do your research before you decide whether you want to refinance or not.