Repaying student loans remains to be a persistent thorn in the flesh for most college students. It is a real crisis that has left hundreds of thousands of college students uncertain about their financial future. However, with student loan refinancing, it is believed that things can be a lot easy for people struggling with multiple student loans. As much as refinancing may mean improved terms and reduced payment times, it is not applicable to all borrowers. That said, this article looks at some possible risks of loan refinancing to consider. ‘
Risks of student loan refinancing
You will no longer enjoy federal loan benefits
Refinancing both federal and private loans means that you will now replace with a new loan. The fact that you will be replacing them with new private loans means that you will be obliged to forgo your federal loan benefits. Things can turn from bad to worse the moment you sign for a repayment plan that demands a fixed portion of your monthly income. Thus, it is advisable to evaluate your decision and see whether it’s a risk worth taking.
Fixed and fluctuating interest rates
Loans offered by private lenders often have variable interest rates. As much as interest rates are bound to fluctuate, there are two sides to this scenario. You can either benefit by enjoying reduced interest rates or face the risk of paying higher interest rates. Thus, refinancing can be a gamble that might help you save some bucks or turn out to be costly in the long run.
No equality of interests
Federal student loans charge uniform rates to all applicants. Refinancing your loans to a private lender opens you a completely different environment where borrowers enjoy selective terms. Ideally, it is the credit rating of the borrower. This means that anything about equality goes out of the window. Thus, you need to be well aware that student loan refinancing won’t be any better if your credit score and earnings are not great.
When should you refinance?
Refinancing your student loan means making a switch from specific loans terms to different ones. The good thing about modern-day refinancing options is that creates the opportunity to work with credible financial intuitions with your interests at heart. Refinancing student loans comes with its unique pros and cons. Thus, it is up to you to evaluate the terms and conditions and choose what works best for you. The best way to refinance student loans is to choose the right lender based on your individual needs.