Not long ago, refinancing offered a path to significantly reduced monthly payments and lower interest rates. Today, the best refinance rates now hover around 5%.

With high interest rates and federal policy changes, refinancing is no longer the shortcut that it used to be. Refinancing is still helpful in certain circumstances, but these cases are the exception rather than the rule.

Sticking with Federal Student Loans Rather than Refinancing

Federal student loans are almost always preferable to private loans. The creation of the new SAVE plan and expansion of loan forgiveness further tilts the scale in favor of federal loans.

Back when refinance rates hovered around 2%, some high-earners faced a difficult decision: do I refinance for a reduced interest rate, or do I stick with the many protections of federal loans?

Today, the interest rates on most federal loans are as low, if not lower, than the best available refinance rates. As a result, the decision is relatively easy for most borrowers.

Fewer Refinance Options

High interest rates are not the only problem for borrowers considering refinancing.

In the current economy, not only are interest rates high, but capital availability is low. In other words, lenders have less money to lend.

Getting approved for a preferred interest rate has become more difficult for borrowers. Feedback from readers of this site appears to confirm that refinance lenders have gotten pickier about who gets approved for a refi loan.

The Exception to the Rule

In a time of high interest rates and inflation, one group of borrowers should seriously consider refinancing: those with variable-rate student loans.

The higher interest rates climb, the more expensive variable-rate student loans will become.

Trading a fixed-rate loan for a variable-rate loan protects borrowers from future interest rate growth.

As of November, 2024, the following lenders offer the lowest interest rates on fixed-rate refinance loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		3.95%	Earnest Review
2		3.99%*	Splash Financial Review
3		4.88%	ELFI Review

If interest rates decline in the future, borrowers can refinance a second or third time. Unlike refinancing a mortgage, refinancing student debt takes very little time, and crucially, there are no transaction costs.

Sherpa Note for Federal Borrowers: A few federal loans still exist with variable rates. These loans were last issued in 2006.

Federal borrowers with variable-rate loans do not need to refinance with a private lender. They can consolidate their federal loans to secure a fixed-rate federal loan.

Timing is Critical When Refinancing

Refinancing isn’t necessarily a bad idea. Exchanging one private loan for another private loan with a lower interest rate is almost always a win.

However, refinancing doesn’t make much sense when refinance rates are high and existing student loan rates are low.

In the coming years, this math might change. If interest rates drop in the future, the high interest loans that students borrow today might become great candidates for a refinance.

For now, refinancing is an option of limited benefit for most borrowers.

The post How Inflation Changes the Student Loan Refinance Math appeared first on The Student Loan Sherpa.

At first glance, the shorter-term loan seems like a great choice. The interest rate is often the lowest possible, and the accelerated repayment reduces total interest spending.

This approach may work well for some borrowers, but the 20-year refinance loan is the best choice in most cases.

20-Year Loans have the Lowest Monthly Payment

The longer the repayment length, the lower the monthly payment. It’s simple math, but the consequences are significant.

A lower monthly bill makes it easier to pay your rent bill. The lower monthly payment enables borrowers to attack high-interest credit card debt or save money to buy a house.

In short, the 20-year loan means flexibility for borrowers.

Managing Extra Interest Charges on a 20-Year Student Loan

If the lower payment is the obvious advantage, spending extra on interest is the obvious disadvantage.

However, this downside isn’t nearly as bad as borrowers might think.

For starters, the interest rate gap between 5-year refi loans and 20-year refi loans is quite small. The 5-year loans start at around 5% interest, and the 20-year loans start at just over 6%.

Secondly, and more importantly, borrowers are not obligated to make minimum payments on a 20-year loan. Someone could choose to aggressively pay it off in five years or less. By securing a 20-year loan instead of a five-year loan, borrowers pay slightly more each month in interest, but they gain flexibility and improve their credit profile.

Improving Borrower Credit Profiles

When people think about creditworthiness, credit scores are usually the first item that comes to mind.

However, an equally important number is the debt-to-income ratio. If you have ever seen a credit application rejected due to insufficient income relative to your debts, it was a debt-to-income ratio issue.

Crucially, debt-to-income ratios look at monthly debt payments instead of total debt balances.

Locking in a lower monthly payment makes it easier to buy a house or to pay off an auto loan.

Thus, even if you plan on paying off a student loan in five years, you might still be better off with a 20-year loan.

Fixed vs. Variable Rate Loans

We can’t discuss the best refinance loan without considering fixed versus variable interest rates.

At a time when interest rates are high across the economy, it might seem like picking a variable-rate loan is the smart choice because monthly payments could drop as interest rates go down.

This approach would be a mistake. Even though rates are high right now, they could continue to climb. A variable-rate loan exposes borrowers to this risk.

Should rates drop in the coming months or years, borrowers can always refinance their loans again. Unlike a mortgage, there are not any costs associated with refinancing a student loan. If rates drop by .5%, a borrower could refinance, and the only cost would be the 15 minutes spent applying for the loan.

Think of the fixed rate as a ceiling rather than a floor.

The Best Rates on 20-Year Refinance Loans

As of November, 2024, the following lenders advertise the lowest interest rates on 20-year fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

The post The Best Student Loan Refinance Length is a 20-Year Fixed-Rate Loan appeared first on The Student Loan Sherpa.

Once it becomes clear that the borrower will repay the debt in full plus interest, the goal becomes to spend as little as possible on interest, which is where a private loan refinance can help.

However, the danger of a private refinance of federal loans is that borrowers permanently give up all of the perks associated with federal loans. The new SAVE plan introduces new perks that may change the refinance analysis for some borrowers.

SAVE also makes waiting for forgiveness a more appealing option in many cases.

What is SAVE?

SAVE is the newest and most affordable federal student loan repayment plan.

When SAVE is fully implemented on July 1, 2024, borrowers will pay between 5 and 10% of their monthly discretionary income. SAVE also uses a more generous discretionary income calculation.

For the vast majority of borrowers, SAVE will have the most affordable monthly IDR payment.

How much will I pay on SAVE? You can estimate your monthly SAVE payment using this SAVE calculator.

It will show payments for the restart and payments once SAVE is fully implemented.

SAVE Makes Refinancing Less Appealing

The decision to refinance often comes down to the federal perks weighed against lower interest rates offered by private lenders.

SAVE is a considerable improvement on the existing federal government perks.

Before considering a private refinance, borrowers should make sure they understand all of the new benefits of the SAVE repayment plan.

When Sticking with SAVE is an Easy Decision

A critical new perk of the SAVE plan is the monthly interest subsidy available to some borrowers.

This subsidy was designed so that borrowers don’t have balances that spiral out of control.

If the monthly interest charges on your loan are larger than the monthly payment, you have unpaid interest each month. In the past, this would cause loan balances to grow. Under SAVE, the subsidy covers 100% of the unpaid interest each month.

If SAVE covers half of your interest, your interest rate is effectively cut in half.

Any borrower that benefits from the SAVE subsidy should probably avoid refinancing. Borrowers in this category usually struggle to keep up with the interest on their loans. Eliminating the principal balance often will require the help of a federal loan forgiveness program. Thus, a private refinance is likely a regrettable mistake.

Refinancing Can Still Make Sense

For borrowers with smaller balances or larger incomes, SAVE may not move the needle.

If your SAVE payment is as much or more than the standard 10-year payment, many of the best federal perks won’t get utilized. Borrowers in this category won’t receive an interest subsidy. Additionally, their loan will likely be paid in full before reaching IDR forgiveness.

If you fall into this category, refinancing is still worth considering.

However, it doesn’t necessarily mean refinancing is the best option. If job stability is a concern or you are thinking about moving into a less lucrative field, keeping federal protections is the prudent choice.

Refinance Tips

If you are going to refinance, it should only be done if you can save a meaningful amount on interest. Giving up federal perks, even if you are unlikely to use them, doesn’t make sense just to save .25% on interest.

However, if you have high-interest federal loans and can qualify for a significantly reduced interest rate, it might be worth the risk.

At present, the following lenders offer the lowest interest rates in the 5-year fixed-rate loan category:

Rank	Lender	Lowest Rate	Sherpa Review
1		3.95%	Earnest Review
2		3.99%*	Splash Financial Review
3		4.88%	ELFI Review

A Final Thought on Refinancing

One of the downsides to refinancing is that the change is permanent.

Once you convert your federal loans into a private loan, there is no going back.

If the question on refinancing is a toss-up in your mind, waiting is probably the prudent choice. If there isn’t any doubt that refinancing will save you some money, the sooner you get started refinancing, the more you will save on interest.

The post How the SAVE Plan Changes the Student Loan Refinance Analysis appeared first on The Student Loan Sherpa.

That said, I’m not sure that this is a topic that will interest most borrowers. If you are refinancing, you want the lowest rate possible, so you shop around. If rates get better, you refinance again. Insight on how the process works doesn’t really change this procedure.

However, if you are curious about how rates move or trying to project where they might head, this article may help.

The Federal Reserve Raising Rates Doesn’t Immediately Impact Refinance Rates

When the Federal Reserve raises interest rates, one would think that student loan refinance rates immediately increase. The Fed regulates the overnight lending interest rate between banks. If borrowing is more expensive for banks, it seems logical that interest rates on loans would increase.

The reality isn’t that simple.

Many of the biggest student loan refinance lenders sell the loans they refinance. They bundle large groups of borrowers into a single large asset that is then sold to investors.

Because of this system, refinance interest rates are most impacted by investor interest. The closest parallel is probably mortgage interest rates.

Parallels Between Mortgage Rates and Student Loan Refinance Rates

Like student loans, mortgages are often bundled and sold to investors. If there is a considerable demand for this investment product, lenders can offer lower interest rates. If investor demand drops, lenders must raise rates to entice investors to buy.

For borrowers trying to project refinance interest rates, this relationship is valuable. Mortgage rates change daily. Refinance interest rates typically change once or twice a month at the most. If you read about a sudden jump in mortgage rates, student loan refinance rates are likely headed in the same direction.

Limitations on the Mortgage and Student Loan Refinance Connection

Mortgage rates are typically reported for 30-year fixed-rate mortgages.

No refinance lender offers a 30-year refinance loan.

Additionally, borrowers looking to refinance have the choice between fixed and variable-rate loans, and loan terms are usually 5, 7, 10, 15, and 20 years.

Variable-rate mortgages exist, but they have largely fallen out of favor in the wake of the 2007-2008 financial crisis.

Because of the differences in loan durations and loan terms, mortgage and student loan refinance rates will not move in lockstep.

Taking Advantage of FinTech vs. Traditional Bank Differences

There are two main types of lenders in the student loan refinance space: traditional banks and fintech (financial technology) companies.

Over the years, I’ve noticed that fintech companies tend to change rates much faster than traditional banks.

This presents a considerable opportunity for borrowers.

If interest rates are increasing, the best deals can often be found with the refinance lenders backed by traditional banks, such as ELFI, LendKey, and Citizens.

When the interest rates are decreasing, the fintech companies often lead the charge. When rates drop, lenders like SoFi and Earnest often have the best deal.

Predicting Rates Usually Doesn’t Help

Now that I have shared how I project student loan refinance rates, it’s time to share an essential nugget of information: predicting rate movement is a waste of time for the average borrower.

If you want to refinance your student loans, you should shop around and check rates with as many lenders as possible. This is how you find the best deal.

If rates drop, you can refinance a second, third, or fourth time. There isn’t a limit to how many times you can refinance.

Most importantly, there isn’t a cost associated with refinancing. There are no application fees, prepayment penalties, or other borrower costs beyond the interest you pay.

Housing is much different. Each time you get a new mortgage, it costs money. There are application fees, title fees, and appraisal fees.

If you are looking for a mortgage, trying to time the market to get the best rate is potentially a valuable exercise. For a student loan borrower, there isn’t much to gain.

The Best Rates Currently Available

As of November 2024, the best deals currently available for refinancing are in the 20-year fixed-rate loan category.

The following lenders offer the lowest rates:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

For those looking for shorter-duration loans or lower rates, be sure to check out this month’s rate update and market analysis.

The post Insider Tips and Insights on the Student Loan Refinance Marketplace appeared first on The Student Loan Sherpa.

While refinancing can undoubtedly be a good option for some borrowers, it comes with major risks for federal student loan borrowers.

Refinancing a Federal Loan into a Private Loan

When you refinance, you are essentially borrowing money from a new lender to pay off an old loan. The money never passes through your hands, but the end result is that your old loan is paid in full and replaced with new debt from a new lender.

The typical advantage of this process is either lower monthly payments or a lowered interest rate.

However, because the federal government doesn’t refinance student loans, borrowers must use a private lender to refinance their government loans. Thus, borrowers erase the federal loans and federal benefits and replace them with a private loan and new terms.

Risks from Passing on Student Loan Forgiveness and Income-Driven Repayment

Refinancing means giving up on all of the federal student loan perks. This includes borrower protections like Income-Driven Repayment and Student Loan Forgiveness.

Public Service Loan Forgiveness is the forgiveness program that gets the most attention from borrowers and the media, but there is a long list of government loan forgiveness programs. Not all borrowers qualify for forgiveness, but refinancing permanently erases the possibility of forgiveness. This is a much more significant risk for some borrowers than others.

Income-Driven repayment is a valuable federal loan perk, even if you choose a different repayment plan. The value of an IDR plan is the safety net that it provides. If you ever lose your job or take a big pay cut, IDR options ensure payments stay affordable. Borrowers facing long-term unemployment can qualify for $0 monthly payments for as long as necessary.

Other Risks to a Private Refinance of Government Loans

The tricky part about accessing the risk of refinancing your federal loans is that it’s impossible to know for sure what you are giving up.

The current federal repayment plans and forgiveness programs may seem lousy, but future options might be more appealing.

For example, some borrowers refinanced their federal loans in the summer of 2019. They likely made this decision to save money on interest while in repayment. The Covid-19 payment and interest freeze wasn’t on anybody’s radar in the summer of 2019. Unfortuantely for those who refinanced at that time, refinancing ended up costing more in interest.

That said, the odds of forgiveness for all look bleak for the foreseeable future. The decision to bet on future government help is also pretty risky.

Sherpa Thought: The decision to refinance or not refinance requires balancing some unknowns. You don’t know what your future holds, and you don’t know what the future holds for federal loans.

The important thing is to make a sound decision based upon the information available at the time. Gather as much information as you can and weigh your options as they apply to your circumstances.

Who Should Refinance Federal Loans?

This is the $89,512 question. (Feel free to insert your loan balance.)

Let’s take care of the obvious answers first. If you have private loans, you can refinance those without much concern. If you are currently benefiting from the federal interest freeze or pursuing loan forgiveness, don’t refinance your federal loans.

Now for the more complicated choices. I’d say two requirements must be met to make refinancing a federal loan make sense.

1. Refinancing must be worth it. When I say “worth it” I mean that the benefit of refinancing needs to be considerable. Don’t refinance to lower your intereest rate by .125%. Don’t refinance to lower your monthly payment by a few bucks. Refinancing federal loans only makes sense if there is an opportunity to save a significant amount of money.
2. Repayment needs to be assured. If you have doubts about your ability to repay your student debt, don’t refinance your federal loans. If you earn a good living and think you will be able to find new work if your lose your job, refinancing becomes less risky.

Ultimately, you need to balance the pros and the cons. If the benefits of refinancing outweigh the risks, it could be a good option.

As of November 2024, the following lenders currently advertise the lowest refinance rates.

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

Based upon the current market conditions, my favorite loan is the 20-year, fixed-rate loan. The interest rate is slightly higher than the 5-year loans, but the monthly payments will be much lower and far more flexible.

The following lenders currently have the lowest rates on 20-year, fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Final Thought on Refinancing Federal Student Loans

I tend to be pretty risk-averse with my financial decisions. If you also like to play it safe, there is nothing wrong with paying a bit more in interest to keep your loans with the federal government.

The post Why is it Risky to Refinance Federal Loans into a Private Loan? appeared first on The Student Loan Sherpa.

Used correctly, refinancing can help borrowers save a fortune on interest and keep monthly payments manageable. Used incorrectly, it can erase student loan forgiveness options.

How Does Refinancing Impact Student Loan Forgiveness?

When you refinance your student loans, a private lender pays off some or all of your current loans. A new refinance loan is created that the borrower must repay.

The purpose of the refinance is for the borrower to use their improved credit score and/or income to qualify for better loan terms.

However, because a new loan is created, benefits that came with the previous loan are erased. A new loan means new terms and conditions. In some cases, borrowers might be better off by keeping their old loans — even if it means living with a higher interest rate.

In most cases, opting to refinance significantly reduces, or eliminates, any chance of student loan forgiveness. As a result, refinancing some loans is riskier than others.

Tax Considerations: Refinancing your student loans usually doesn’t impact your ability to deduct student loan interest on your tax return. However, spending less on interest does mean a smaller deduction.

Three Categories of Student Loan Risk when Refinancing

Refinancing isn’t always a good idea, and it isn’t always a bad idea.

Instead, borrowers need to carefully consider the consequences of having a new loan replace their old loans.

I usually break refinancing down into three different categories:

Are you chasing after Public Service Loan Forgiveness? Do you need the option of an income-driven repayment plan?

Federal student loans have interest rates that are a bit high, but federal loans also have the best borrower protections. Private lenders cannot compete with the federal loan terms.

If you think you are likely to take advantage of any of the various federal programs, don’t refinance your federal loans into a private loan.

Some borrowers have federal student loans, but they don’t see a need for federal perks and protections.

These borrowers may have reviewed the various forgiveness programs available and concluded that they wouldn’t qualify. Similarly, their income is high enough that an income-driven repayment plan doesn’t help save money.

If student loan elimination is just a matter of time for you, and you have the option to save a bundle by lowering interest rates, it might make sense to refinance your federal loans into a private loan.

However, even in this circumstance, caution is still necessary. Once you refinance your federal loans into a private loan, there is no way to undo the process.

If you have private student loans, refinancing is a much safer option.

You are not giving up any federal perks. Instead, you are trading one private lender for another.

Additionally, it is worth noting that you don’t have to refinance all of your student loans. Borrowers can pick and choose which loans get refinanced and which loans stay with their current lender.

What about student loan cancellation or forgiveness for private loans?
Some borrowers fear that by refinancing their private loans, they may miss out on possible loan forgiveness or cancellation in the future.

However, student loan forgiveness at this point is unlikely. If it did happen, it almost certainly would not apply to private loans. Finally, if by some miracle there was private loan forgiveness, a private refinanced loan would almost certainly receive the same treatment as other private loans.

Finding the Best Refinance Lender

This site reviews and ranks all of the refinance lenders on the market.

However, the vast majority of borrowers should focus on finding the lender offering the lowest interest rate. Slight differences in customer service and lender reputations usually are not enough to justify paying a higher interest rate.

As of November 2024, the following lenders offer the lowest interest rates:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

Alternatively, if a reduced interest rate and lower monthly payment are more appealing, a 20-year fixed-rate loan might make the most sense. As of November 2024, the following lenders have the lowest rates in the 20-year fixed-rate category:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

The post The Student Loan Forgiveness Risks from Refinancing appeared first on The Student Loan Sherpa.

Private student loans are a different story. Borrowers can refinance private loans at any point, which comes with less risk than a federal refinance.

Even though borrowers may refinance their private loans whenever they want, there are several factors that borrowers should consider before taking the plunge.

Loan Contracts and Prepayment Penalities: A Risk to Private Refinancing?

When a borrower refinances a student loan, the old student loan is paid in full, and a brand new loan is created.

Clever borrowers fear that early repayment of their student loans might trigger a prepayment penalty. Lenders might want to charge this fee, but this practice was outlawed for private loans back in 2008.

However, it is still worthwhile to review your old loan contracts. If the terms of the old loan are better than the new loan, borrowers should avoid refinancing.

Dealing with the Old Lender

Many borrowers fear that their current student loan company will make refinancing difficult or impossible.

Even though some student loan companies have well-deserved reputations for nonsense, refinancing is usually hassle-free. Best of all, if there is an issue, it is the job of the refinance lender to deal with it.

Lenders cannot prevent a refinance. The process happens with enough frequency that all the major refinance lenders have procedures to deal with all the major student loan lenders.

Can I Refinance Only Private Loans?

Borrowers are allowed to refinance just their private loans.

The confusion on this question exists because so much refinance discussion revolves around federal loans. As a result, many borrowers fear there is a limitation on private loan refinance.

Borrowers are permitted to refinance just their private loans. In many cases, it is the best strategy. Federal loans come with generous forgiveness programs and income-driven repayment plans. For this reason, refinancing just the private loans is often the smart move.

Can I Refinance Private Student Loans to Federal?

Because federal loans have the best perks, refinancing a private loan into a federal loan sounds like a great idea. Unfortunately, this option isn’t available.

Even though borrowers can’t refinance a private loan into a federal loan, a couple of tricks are available to convert private debt into federal debt. The process isn’t instant, but because federal loans are usually better than private loans, every little bit helps.

When is it Worth it to Refinance?

The big advantage to refinancing is getting lower interest rates on your student loans.

Generally speaking, if a refinance lender offers slightly better terms, it is worth the time and effort to refinance. A slight interest rate reduction can result in significant savings, and the refinance process takes very little time.

Additionally, there are a handful of times when refinancing is especially smart.

The only major downside to refinancing is that not all borrowers qualify. Current students, unemployed borrowers, and those with a short or negative credit history often struggle to find a refinance lender. Those who are not desperate for help — the employed borrowers with a good credit history — have plenty of options.

Finding the Best Refinance Lender

I’ve spent years reviewing and comparing the best student loan refinance lenders, but for most borrowers, the best refinance lender is the one that offers the lowest interest rate.

Some lenders offer slightly better customer service or borrower perks, but the best rate should be the driving factor.

At present, the following lenders offer the best refinance rates:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

The post Can You Refinance Private Student Loans? appeared first on The Student Loan Sherpa.

Before jumping into specifics, it is worth noting that most of the risk from refinancing comes from converting federal student loans into a private student loan. As you will see below, the risks for private loan borrowers are reduced.

#1: Avoid Refinancing if You are Betting on Biden Cancelling Federal Student Loans

I’m in the category of people that thinks Biden canceling loans is unlikely. However, it is a possibility.

Borrowers who are optimistic about the $10,000 of loan cancellation becoming a reality should hold off on refinancing their federal loans. Those with larger federal balances might also consider refinancing some, but not all, of their federal loans. These borrowers can take advantage of debt cancellation if it happens, but still enjoy the lower rates from a refi lender.

Ultimately, the key takeaway is that if loan cancellation happens, it will almost certainly only apply to federal loans. Thus, refinancing all of your federal loans into a private loan could be a mistake.

#2: Don’t Refinance Loans if the Interest Rate Isn’t Better

Some borrowers mistakenly think they must include all of their loans in a refinance. Sometimes a refi lender will offer a loan that has a better interest rate than most, but not all of a borrower’s loans. There is no obligation to combine all of the loans. Borrowers can select the individual loans they want to be included in the refinance and leave the current low-interest loans untouched.

Similarly, sometimes borrowers choose to go from a fixed-rate loan to a variable-rate loan. This can be a risky decision. If interest rates go up in the coming years, that new loan could become quite expensive. In many cases, opting for the security of a fixed-rate loan is ideal, even if it means a slightly higher interest rate.

#3: The Possibility of Government or Non-Profit Work Usually Means Borrowers Should Not Refinance

One of the great perks of federal student loans is the Public Service Loan Forgiveness program. Successfully completing PSLF isn’t easy, but borrowers can get their federal debt forgiven after ten years of eligible employment.

A refinance might not be a mistake if you have a tiny amount of federal loans, but for borrowers with larger balances, the mere possibility of eligible work might make refinancing a risk.

Borrowers should carefully consider whether or not employment at an eligible employer is a possibility. If the chance of PSLF-qualifying work exists and the debt is large enough that forgiveness after 10 years of payments is valuable, refinancing should probably be delayed.

#4: Refinancing Federal Loans is a Mistake if You Might Go Back to School

A return to college is a massive variable in your financial planning.

Further education could mean much more student debt. It might lead to forgiveness opportunities like Public Service Loan Forgiveness. It might lead to so much borrowing the income-driven forgiveness becomes a critical resource.

Going back to school opens many new doors. It may create opportunities that you haven’t even considered yet. Having federal student loans instead of private debt may be a huge asset in the future.

Ultimately, there are many unknowns with a return to college. With so many question marks, having the flexibility of federal student loans is a really smart move. For this reason, refinancing federal loans before returning to school could be a mistake.

#5: Don’t Refinance if You Have Job Security Concerns

How does the future look with your current employer? If you lost your job, how long would it take to find similar employment?

If you find yourself unemployed or underemployed, you will want your student loans to be federal student loans. Unlike all private loans, federal loans give borrowers the option of making payments based upon what they can afford rather than what they owe.

Having income-driven payments means borrowers facing tough times may qualify for $0 payments. These $0 payments can last indefinitely. Borrowers that make income-driven payments long enough can qualify for loan forgiveness.

This particular feature of federal student loans is an excellent rainy day feature. If you have concerns about your long-term employment situation, don’t make the mistake of refinancing your federal loans into a private loan.

#6: Avoid Student Loan Refinancing if Your Monthly Payment Goes Up

This tip may sound incredibly obvious, but it is a common mistake made by borrowers. Many borrowers select the refinance loan offering the lowest possible interest rate. The downside to picking the lowest rate is that it comes with a five-year loan. If you are coming from a 15-year loan, switching to a five-year loan will mean higher monthly payments, even if the interest rate is lower.

The problem with this particular trade is that it damages your debt-to-income ratio or DTI. The danger of hurting your DTI is that it makes buying a house more difficult.

Similarly, if the payment goes up too much, it can be challenging to make the monthly payment. Borrowers should balance their desire to get the lowest possible interest rate with their need to keep monthly payments affordable.

Dealing with this issue right now is especially easy. The lowest rates available currently hover around 2% for a five-year variable-rate loan. Borrowers that opt for a 20-year fixed-rate loan can still qualify for excellent rates.

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Remember, picking a 20-year loan does not mean it must take 20 years to repay the debt. You can always pay extra when convenient. However, the longer loan term provides flexibility, and it opens doors for borrowers looking to take advantage of their low interest rate.

The post Six Reasons You Should Not Refinance Your Student Loans appeared first on The Student Loan Sherpa.

In most cases, the decision comes down to comparing the federal student loan perks against the lower interest rate from refinancing. Federal student loan benefits are more than just protection for borrowers who face unemployment or underemployment. Under the right circumstances, these perks may help practicing physicians as well.

Public Service Loan Forgiveness (PSLF) Eligibility

Taking a PSLF eligible job doesn’t mean a vow of poverty.

The key factor in qualifying PSLF is your employer. What you do or how much you get paid does not impact PSLF eligibility. Doctors employed by the government or a 501(c)(3) non-profit may qualify for Public Service Loan Forgiveness. The Department of Education’s PSLF Help Tool is an excellent resource for investigating employer eligibility for PSLF.

Many Physicians also work in private practice in addition to their government or non-profit job. This additional income does not prevent qualifying for PSLF. The only impact is that the extra earnings will increase monthly payments on income-driven repayment plans.

The decision between PSLF and aggressive repayment is often complicated. Borrowers unsure of the best strategy may benefit from choosing a middle-ground approach that keeps both doors open.

Medical School is Really Expensive

In the category of incredibly obvious is the fact that medical school is really expensive.

It is worth pointing out this fact because it means the stakes are high. An error may cost more than a new car.

Refinancing at the lowest possible interest rate sometimes means a commitment to high monthly payments. How is your job security? How hard would it be to find a job with equivalent or better pay? Will you still be willing to do this work five years from now?

Just because you can qualify to refinance your student loans doesn’t make it is a good idea.

A Note About Private Loans: If you have private student loans, the risk of refinancing is significantly smaller. Borrowers with private student loans usually benefit from a refinance as long as they can find lower interest rates.

Refinancing Makes it Harder to Take a Sabbatical

Physician burnout is a significant problem.

One common remedy is to take a year-long sabbatical. Time off can help you charge your batteries and rediscover your passion. Unfortunately, sabbaticals often come with a high price tag.

Stepping away for a year is far easier for federal student loan borrowers. Federal borrowers can sign up for an income-driven repayment plan and lower their monthly bill to 10% of their discretionary income. Those who refinanced to a private loan may struggle to keep up with payments.

Focus on Retirement or Other Financial Goals

The final concern for physicians refinancing is the opportunity cost.

Committing to an aggressive student loan repayment strategy means fewer funds are available for goals like retirement or buying a house.

Those who stick with federal student loans often find options to attack student debt and save for retirement at the same time. For example, borrowers chasing PSLF can use retirement contributions to lower their monthly payments and increase the amount of forgiven debt.

The post Four Reasons Doctors Should Not Refinance Their Student Loans appeared first on The Student Loan Sherpa.

Those who choose to refinance their federal student loans into a private loan may save a bundle on interest, but they sacrifice significant federal perks and valuable flexibility.

Because there is no way to “undo” a student loan refinance, attorneys carefully consider the following red flags.

BigLaw Salaries Are Not Guaranteed

If you are working for a large law firm right out of law school earning a market salary, you already have a track record of defying the odds and exceeding expectations.

However, it is no secret that the vast majority of first-year associates don’t make it to partner. BigLaw burnout is real, and the attrition rate is high.

Don’t assume you will be at the same firm several years from now. Don’t assume that you will always pull in a large salary.

If you refinance your student loans, make sure you can handle monthly payments if your income takes a big dip.

The Appeal of Government Work Makes Refinance a Risk

Working for the government has significant advantages for many lawyers. The hours can be better, and the work may be more fulfilling.

The added job satisfaction often means reduced salary.

However, there is a substantial financial advantage to government work: Public Service Loan Forgiveness (PLSF). Those who qualify for PSLF can have their entire federal student loan balance forgiven after ten years. PLSF can make taking a government job more feasible.

If there is a chance that you may become a government lawyer, you should not refinance your federal loans unless you have a small federal balance.

Massive Debts and Forgiveness

The stakes of the refinance decision are incredibly high for many law school graduates. Federal debts of 200k or more are common.

Lowering the interest rate on such a large amount of debt can save a fortune. Dropping from Graduate PLUS interest rates to the low rates offered by some refi lenders may be worth more than $10,000 in interest savings per year.

However, this means passing up many forgiveness options. In addition to the previously discussed PSLF program, there are many other forms of federal student loan forgiveness.

I know many lawyers hate math, but a quick calculation can be really insightful. Think of the forgiveness programs as an insurance policy. Now calculate how much you would save on interest each year if you refinance with a private lender. The higher yearly interest cost on federal loans is the cost of the insurance policy. If the interest policy is cheap, or you might need the coverage, don’t refinance.

Lawyer Fatigue and Less Lucrative Work

This article is written by a former homicide prosecutor who now blogs about student loans for a living.

Being a badass trial lawyer was a dream of mine. I loved my job. Early in my career, I thought for sure that I would be a practicing attorney for life.

I’ll skip over the personal story and jump to the bottom line: many lawyers do not stay in the profession long-term. The work is stressful. The hours are long. Life happens, and priorities change.

When planning your finances, don’t assume that what is working now will continue to work indefinitely. Have a backup plan or three. Know that new and exciting opportunities may come along. Sometimes these jobs don’t pay as well.

If refinancing only makes sense at your current high salary, it could be a huge mistake.

The Need for Income-Driven Repayment

One of the biggest advantages of federal student loans is Income-Driven Repayment (IDR). Put simply, lawyers should not refinance their student loans if they need access to IDR plans.

In addition to qualifying for forgiveness programs, IDR also ensures that monthly payments are manageable. Rather than making payments based upon what you owe, IDR payments are based upon what you can afford.

The value of IDR may appeal to attorneys in several different ways:

• An extended job hunt – If you are out of work, IDR payments can be lowered to $0 per month. This protection is especially valuable if the job market gets ugly.
• Starting a new firm – If you decide to go out on your own, the first few years may be lean. If you are investing most of your revenue back into your firm, money will be tight. Having IDR payments ensures student loans won’t get in the way of starting your own practice.
• Inconsistent income – If you work on contingency or have considerable fluctuations in income, IDR is excellent. IDR payments are usually calculated based upon your most recent tax return. If you are in a down period, you can have your payments immediately recalculated.

Private Student Loan Refinance Risks

The danger is refinancing private student loans is significantly reduced. Many lawyers who should not refinance their federal student loans may still benefit from refinancing their private loans.

The biggest concern with private refinance may be the possibility of higher monthly payments. For example, the lowest refinance rates currently available are in the 5-year variable-rate category. If you have a loan that is currently on a longer repayment plan, lowering repayment length to five years will result in higher monthly payments, even if you lower the interest rate considerably.

However, this issue can be mitigated by refinancing on a longer loan at a slightly higher interest rate. At present, the spread between short-term loans and long-term loans is minimal.

These lenders currently offer the lowest 5-year loans:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

By stretching repayment out over 20 years, borrowers can secure a fixed-rate loan at these rates.

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Finally, it is worth noting that borrowers can always pay extra to eliminate their loans faster. A borrower may choose to refinance on a 20-year loan but pay extra to eliminate the debt in 10 years. This borrower would have a slightly higher interest rate, but they would also have much more flexibility if their finances worsen.

The post Six Reasons Lawyers Should Not Refinance Their Student Loans appeared first on The Student Loan Sherpa.