We’re living in uncertain times amidst the COVID-19 pandemic, so it’s good to be thorough as you evaluate what personal financial moves to make.
If you’re a student loan borrower, you’ve probably wondered, should I refinance student loans during the coronavirus pandemic?
The short answer is this: don’t refinance your federal student loans but try to refinance your private student loans.
For the long answer, keep reading. We’ll explain why now is a bad time to refinance your federal loans but a great time to refinance your private ones.
Now Is Not the Time to Refinance Federal Student Loans
Refinancing federal loans always requires some extra considerations because these loans come with many federal benefits. For example, federal borrowers have access to income-driven repayment plans, loan forgiveness, the Public Service Loan Forgiveness Program, academic deferment, and death and disability discharge.
With the coronavirus at play, borrowers have even more to consider.
Here are three reasons why you shouldn’t refinance federal student loans during the coronavirus:
Federal Student Loan Payments are Suspended
Many borrowers refinance to lower their monthly payments. Thanks to the CARES Act, there’s a payment pause on all eligible federal student debt backed by the Department of Education. Borrowers don’t owe anything on their federal student loans until at least January 1, 2021.
Refinancing can’t get your monthly payment lower than $0 per month.
Federal Loans aren’t Accruing Interest
Borrowers also refinance student debt to lower its interest rate, reducing the overall cost of the loan.
The CARES Act dropped interest rates on all qualifying federal educational loans to 0% through December 31, 2020. A zero percent refinance rate means two things:
- Your loan balance is not growing
- Any payments you make (assuming you don’t owe any outstanding interest) go directly on principal, lowering your loan balance
Refinancing won’t get you a 0% interest rate.
Biden Wants to Cancel Some Student Debt
Not only are we in the middle of the COVID-19 pandemic, but we’re also in the middle of the presidential election.
Joe Biden’s campaign platform includes widespread student debt cancellation, starting with $10,000 in federal student loan cancellation as a coronavirus relief measure.
Privately refinancing your government loans would disqualify you from any federal student loan cancellation or forgiveness.
We don’t know if Biden will win the election or if he does win, when if ever he would cancel the debt. However, we should have a clearer picture before the current coronavirus student loan relief measures expire at the end of the year. In the meantime, it’s best not to refinance your federal student debt.
It’s a Good Time to Refinance Private Student Loans
You shouldn’t refinance your federal loans right now, but you should consider refinancing your private loans. Not everyone will qualify for refinancing, but now’s a great time to try.
Here are three reasons why you should refinance private student loans during the coronavirus pandemic:
Interest Rates are Low
In September, the Federal Reserve announced it would keep the federal funds rate at 0 to 0.25 percent until labor market conditions improve. Private lenders use that rate as a benchmark when setting their own rates, which is good news for borrowers.
Refinance rates are low. Borrowers with a steady income and excellent credit have the best shot at being approved for the lowest rates, especially if they’re refinancing to a shorter loan term.
If that’s not you, consider adding a creditworthy cosigner. A cosigner’s strong credit score can help you snag the best rates. Prioritize applying to refinance lenders with cosigner release.
You Can Secure Borrower Protections
Does your current lender offer economic hardship or unemployment forbearance? What about academic deferment or total and permanent disability discharge?
If your lender isn’t offering you the above protections, you need a new lender. Refinancing with one of the top student loan refinance companies gives you access to financial relief during times of hardship.
It Offers Flexibility in Unpredictable Times
Everyone’s facing unprecedented situations due to the coronavirus pandemic.
Even if you’re still employed, you might be stretched financially for other reasons. Maybe your job is secure, but your partner lost theirs. Perhaps your monthly childcare expenses have skyrocketed. Maybe you’re facing unexpected medical expenses.
Whatever is happening, refinancing can help you make more room in your budget.
Securing a lower interest rate and/or switching to a longer loan term can lower your monthly payments. A longer loan term would increase the overall cost of your loan, but that might be worth it for the payment flexibility. Plus, you can always make additional payments to pay down the loan faster.
Get Started with Refinancing Your Student Loans Today
Here’s a brief guide for student loan borrowers interested in refinancing student loans during the coronavirus pandemic.
1. Determine Why You’re Refinancing
People tend to refinance because they want:
- To save money
- A lower interest rate
- Lower monthly payments
- Better service and borrower protections
- To pay off their loans faster
- A single location to make payments
Why do you want to refinance? Determining the reason will help you as you evaluate potential refinance deals.
2. Read Up on Student Loan Refinancing Mistakes
Refinancing isn’t something to do on a whim, especially if it could increase your monthly payment during an economic crisis. Read about and carefully consider The Top 11 Student Loan Refinancing Mistakes so that you make an informed decision about whether or not to refinance.
3. Determine Which Private Student Loans to Refinance
You may not want to refinance all of your private student debt. For example, if you have commercially held FFEL or Perkins Loans, you could consolidate with a Direct Consolidation Loan instead. The new Direct Consolidation loan would be eligible for coronavirus student loan relief measures in the CARES Act.
Speak to your loan servicer if you want to learn more about how federal consolidation would work for you. Once the payment pause ends in January, it’s possible that a Direct Consolidation loan would have a higher interest rate than what you have now.
4. Get Rate Estimates from Different Refinancing Lenders
Many private student refinance lenders, including those we partner with, run a soft credit check for preapproval. This won’t affect your credit score, and it will give you a fairly accurate rate estimate in minutes. Pick the refinance lenders you’re interested in and see what rates you get.
LendKey is a great place to start your search. This online marketplace pairs borrowers with community banks and credit unions. Plus, it offers cosigner release—a major perk if you need a cosigner.
5. Run the Numbers
Next, you need to compare your refinance deals to your current private loans to see if it’s a good deal. This requires two steps.
First, Calculate Weighted Average Interest Rate
The weighted average interest rate is more than just the average interest rate of all of the debt you want to refinance. It also accounts for each loan’s amount.
Use our weighted average interest rate calculator to help.
Next, Use the Student Refinance Calculator
Our student loan refinancing calculator compares your existing loan to your refinance loan. For current loan info, plug in the total amount of debt you’re refinancing along with the weighted average interest rate. For the new loan info, insert your refinance loan deals one at a time.
Compare each one to your current loan to see which deal will help you meet your refinance goals. The calculator will compare total interest paid, monthly payment, interest rate, and loan term, showing you savings for each category.
It’s harder to compare loans with variable interest rates because the interest rate will change over time. That makes variable rates a riskier choice, even if they start out lower. Learn more about choosing between variable and fixed-rate student loan refinance products here.
6. Decide Which Refinance Deal is Right For You and Finalize the Application
Weigh your options and determine which refinanced loan—if any—is right for you.
Beyond just comparing the numbers, you should also consider the lender’s special benefits and borrower protections. For example, if you’re unsure about your job’s stability, going with a lender that offers a longer period of economic hardship forbearance might make sense for you. If you need a cosigner, prioritize refinancing lenders with cosigner release.
Above all, make sure the refinanced loan you land on will actually help you achieve your financial goals. If it won’t, consider adding a cosigner to your application, improving your credit score, or getting rates from other companies.
Finals Thoughts on Should I Refinance Student Loans During the Coronavirus Pandemic?
Federal borrowers should not refinance federal debt during the COVID-19 pandemic. With private student debt, it depends. Rates are great right now, but you’ll only get the lowest rates if you or your cosigner have an excellent credit score. Adding a creditworthy cosigner can help. Of course, even without the lowest rates, private refinancing can also provide other forms of relief during the pandemic like a lowered monthly payment or extra borrower protections.
Learn more about student loans and the coronavirus:
Student Loan Forgiveness: Coronavirus Edition
Student Loan Grace and Forbearance Coronavirus Relief: What You Should Know
Tips on Paying Student Loans During Coronavirus for All Borrowers
Which Student Loans are Covered By the CARES Act?
Will the Government Extend The Grace Period Because of Coronavirus?
How Coronavirus Impacts Parent Student Loans – What Borrowers Need to Know
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply. (1)The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. (2)$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. (3)This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. Information advertised valid as of 1/27/2021. Variable interest rates may increase after consummation.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
Ascent: Ascent’s undergraduate and graduate student are funded by Bank of Lake Mills or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 9/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs require interest-only payments, the shortest loan term, and a cosigner, and are only available to our most creditworthy applicants and cosigners with the highest average credit scores.
*The minimum amount is $2,001 except for the state of Massachusetts. Minimum loan amount for borrowers with a Massachusetts permanent address is $6,001.