As a Buckingham Practice Integration Advisor, I am often asked this question: “My student loans are in forbearance. Should I look to refinance now?” Like most of life’s situations, there is not a “one size fits all” answer to this question. Instead, one must look at their personal circumstances before making the decision to refinance their student loans. There are numerous pros and cons to staying the course or finding a new lender.
First, let’s examine the benefits to refinancing your student loans:
- Depending on your current federal loan interest rates, you may save money by refinancing your loans at a lower rate.
- In this rising rate environment, it may be valuable to lock in your loan interest rate from variable to fixed.
- Simplify the process by consolidating your loans.
- If your parents or another adult co-signed on your student loans, refinancing would allow you to take them off and release them from the advance.
- If you are displeased with the current federal loan servicer, a change could possibly help.
While refinancing student loans may sound appealing to you, there are some benefits in keeping your current federal loans, namely:
- Federal loans allow you to pause your payments for a limited time if you are struggling financially.
- Congress and the president are considering debt forgiveness for student loans.
- The federal government has considerable flexibility with student loan terms.
Should you refinance now? Let’s answer that question by considering those situations where refinancing your student loans may not be a good idea:
- If you have less than ten years remaining on your loans, consider staying with your current loans.
- If your loan rate is already low, shop around! With today’s market volatility and high inflation, you may not find a better interest rate.
- If you need an income-driven repayment plan in the future, only federal student loans offer terms tied to your income level.
- If you have weak credit, private lenders may charge a higher interest for a perceived higher risk.
- If your current income is not secure enough to refinance student loans, things such as the loss of a job or reduction of income could be financially devastating for a private student loan.
Assuming your personal circumstances do not match the situations identified above, I encourage you to explore refinancing your federal student loans.
If this is not a viable option for you, I urge you to use the current forbearance period as an opportunity to get your personal financial house in order. In the future, your private circumstances may change that will allow you to benefit from refinancing your student loans.
Also, stay tuned for our next post from my colleague Tom Bodin as he shares his thoughts on the impact of rising interest rates on the value of your practice.
About the author:
Mike McAninch, Practice Integration Advisor, CFP®, CPA
As a practice integration advisor with Buckingham Strategic Wealth, Mike McAninch specializes in helping dentists connect their money and their values to realize their most important financial goals. He focuses on the implementation of strategies for business and personal cash flow tax efficient saving, income and estate tax planning, personal and professional debt review, business transition planning and execution.
For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-22-4174