Over the course of the last two months, it’s become clear that the COVID-19 pandemic is not only a public health emergency. It is also, and perhaps even primarily, an economic crisis - one that will affect each of us in unprecedented and unpredictable ways. In light of that, millions of Americans in recent weeks have begun to completely reassess their personal financial management strategies. And given the complexity and uncertainty of our present moment, most of us have a lot of questions about how to manage our accounts, investments, and debt.
As for the 44 million Americans who are currently shouldering student loan debts, one question has stood out amongst all the others: is now the right time to refinance?
What is Student Loan Refinancing?
Simply put, refinancing is the process by which an individual signs up for a loan to pay for and replace a previous loan. In other words, refinancing a loan means that you’d agree to take on the terms, conditions, and benefits of a new loan in order to essentially nullify the terms, conditions, and benefits of a pre-existing loan.
For example, let’s say that for the past few years you’ve been submitting regular payments to pay off your federal student loan debt. Now, you have two basic options to consider: you can either continue to be beholden to the rates and terms of the Federal Student Aid office, or you can refinance through a private lender (the federal government does not offer student loan refinancing), thereby taking on payment terms, rates, and benefits that are more amenable to your current financial situation.
Is Now a Good Time to Refinance Your Student Loans?
As the mid-pandemic US economy continues to slow to a crawl, student loan interest rates have plunged to a historically low point. This trend, in turn, has led many student loan borrowers to wonder if now might be a golden opportunity to refinance. That is, to take advantage of the student loan refinancing options by switching to a new loan that offers the historically low interest rates currently in place.
The fact is, this could be a great time to refinance - but it depends entirely on what type of student loan(s) you have.
If you only have federal student loans, you should keep in mind that by refinancing, you’d be waiving your eligibility to be a part of assistance programs like Public Service Loan Forgiveness and loan payment forbearance that are now being offered by the federal government in response to the pandemic.
If, on the other hand, you have a combination of federal and private loans (or if you only have private loans), you should absolutely consider refinancing as soon as possible. In all likelihood, you’ll be able to switch over to a new loan with an interest rate that’s much lower than what you’re currently paying. Even better, you can take full advantage of the present moment by signing up for a fixed rate loan that will allow you to continue to pay these unprecedentedly-low rates even after the COVID-19 crisis has ended.
The Bottom Line
In summary: despite the fact that loan interest rates are currently at an all-time low, you should be sure to fully weigh the pros and cons of exiting your current loan agreement before you decide to refinance. If you’re currently repaying federal student loans, it may actually be in your best interest to stay put in order to leverage the federal government’s student loan debt relief initiatives. But if you’re currently repaying a private loan with a high interest rate, the present moment is very likely to be a once-in-a-lifetime opportunity to switch to a more manageable and affordable loan.
If you’re interested in refinancing during the COVID-19 crisis, we recommend that you start by checking out a variety of loan options and interest rates. Here are a few online resources that can help to get you paired with a loan option that will be a good fit with your budget and lifestyle:
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