This website has already discussed how refinancing your student loans has a number of benefits. Indeed, refinancing your student loans can lower the amount of interest you pay over the life of the debt, and could possibly decrease the amount you need to pay each month towards your student loans. For these reasons, many people would benefit from refinancing their student loans, and this website has already discussed the types of individuals who would realize the most advantages from refinancing their student debt.
However, some people would not benefit from refinancing their student loans. As previously mentioned, some individuals who work for certain employers, and people with massive amounts of student debt, might not realize too many advantages from refinancing their student loans. Although I believe that everyone should at least consider refinancing their student loans, it would be dishonest for me to say that this option is appropriate for everyone. In order to provide the most information possible, this article discusses the types of people who might not benefit too much from refinancing their student debt.
If you work in the public sector, it might not make sense for you to refinance your student loans. Most public-sector employees can apply for Public Service Loan Forgiveness after devoting a set percentage of their income towards student debt for 120 months. Refinancing student debt could impact one’s eligibility for this debt forgiveness. Since this forgiveness means that public sector employees will only be paying off their student loans for ten years, it is usually best for these individuals to stay in this program and not refinance their student debt.
Some people might think that this program is not secure, and that they should consider refinancing their student loans, since the government might not forgive their loans. However, it seems like this program is not going anywhere, and individuals have already received debt forgiveness through PSLF. Of course, if you work in the public sector, and think you can pay off your debt well before the ten-year period involved in PSLF, then you could still evaluate refinancing. However, most public-sector employees would likely not benefit from refinancing their student loans.
In addition, people with massive amounts of student loans might also not realize too many benefits from refinancing their student debt. Indeed, individuals who have six figures of student loans might be better off repaying their student debt through an income-driven repayment plan. Some individuals racked up very large student loan balances by debt-financing multiple degrees, attending expensive institutions, or waiting for a long period of time before repaying their student loans. Many of these individuals might not be able to pay more than just the interest that accrues on their student debt.
However, an income-driven repayment plan allows these borrowers to completely pay off their student loans, albeit over an extended period of time. Through an income-driven repayment plan, borrowers merely need to pay a certain percentage of their income to student loans each month, and after 20 or 25 years, the remaining balance is forgiven. Of course, interest will continue to accrue on this debt, but this does not matter too much, since the entire balance is forgiven after 20 or 25 years. Although refinancing could lower the amount of interest that accrues on your debt, if you have so much debt that it will take decades to pay off your student loans, it might be more beneficial to just take advantage of an income-driven repayment plan.
Furthermore, if you do not have too much student debt, it might not make much sense to refinance your student loans. In order to refinance student debt, you will have to fill out forms, provide supporting documentation, and complete other tasks. This process takes time and energy to complete. However, if you only have a small amount of student debt, all of this effort might not be worth it, since you will likely pay off your student loans in a short amount of time. Of course, if you do see yourself repaying a smaller balance of student debt over a longer period of time, then you should consider refinancing. However, most people with low student loan balances might not benefit enough from refinancing their student loans.
In addition, if you are lucky enough to have a low interest rate on your student loans, it might not make sense to refinance your student debt. As previously mentioned, many student debt borrowers have student loans with interest rates as high as six, seven, and even eight percent. Accordingly, it makes sense for these individuals to refinance their student loans, since you can obtain an interest rate around four or five percent (or even lower) after refinancing. However, if you already have an interest rate around this amount, it might not make sense to refinance, since you may not obtain more favorable terms after refinancing your student loans.
Of course, refinancing makes the most sense for many student debt borrowers. As such, you should do your research about refinancing even if you fall into one of the categories of people who might not benefit from refinancing their student loans. Everyone has different situations, and refinancing still might be the right strategy for you. As already mentioned on this website, Student Debt Diaries has partnered with Splash Financial a leading student loan refinancing company. As such, if you apply to refinance your student loans through the link above, you may receive a generous welcome incentive, and we might receive a financial incentive as well.
In the end, student loan refinancing might not make the most sense for certain kinds of individuals. Nevertheless, everyone should do their research, since refinancing can have a massive impact on your student debt story.