Refinancing federal loans with a private lender makes little sense for most borrowers. You might score a lower interest rate if you have a good credit score or a cosigner who does. A better rate will reduce your total interest, helping you pay off the loans faster.
But refinancing comes at a cost: you’ll lose federal protections like student loan forgiveness, income-based repayment options, deferments, and so on.
In my years as a student loan lawyer, I’ve seen many people regret refinancing their federal loans — especially when they learn the Biden administration has wiped out loans for other federal student loan borrowers who attended their school or temporarily expanded the PSLF Program. Read more about borrower defense to repayment and the Limited PSLF Waiver.
In my experience, student loan refinancing makes sense if you have a strong, stable financial situation and owe less than 1.5 times your salary. Those factors give you a reasonable shot at paying off the loan balance.
But if you don’t have savings, lack job security, or owe a lot more than you earn each year, keeping up with the student loan payments after refinancing can prove challenging. You may find yourself stretched thin with no margin for error.
Many private lenders don’t offer lengthy deferments or forbearances to help you when your income drops unexpectedly. And if you don’t pay on time, not only will the lender ding your credit report, but it may also choose to sue you and your cosigner to recover the money owed.
Learn More: Will Refinanced Student Loans Be Forgiven?