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Should I Refinance Student Loans During Coronavirus?

Should I Refinance Student Loans During Coronavirus?
Many student loan borrowers are asking an important question: “Should I refinance student loans during Coronavirus?”
The federal government has temporarily suspended federal student loan payments and provided other student loan relief as a result of the Covid-19 pandemic. While you may be tempted to stop paying your federal student loans, remember that not all federal student loans are paused and neither are private student loans. Plus, with low interest rates, you may want to consider student loan refinancing to get a lower interest on your student loans.
It’s an important to understand the pros and cons to student loan refinancing during Coronavirus so that you can make a fully informed decision.
Let’s start with the advantages to refinancing student loans now during Coronavirus.

Advantages: Student Loan Refinancing

You can save money when you refinance student loans

When you refinance student loans, you could save significant money on your student loans. Student loan refinancing helps you get a lower interest rate on federal student loans, private student loans or both. With a lower interest rate, you can pay off student loans faster and get out of debt more quickly. In this current economic environment, the Federal Reserve has cut interest rates, which has enabled student loan borrowers to refinance with among the lowest interest rates. Many student loan borrowers are deciding to refinance again to lock in a lower interest rate. Make Lemonade can help you compare the latest student loan refinancing rates and find the right lender for you.

You can choose a fixed or variable interest rate

In addition to saving money, student loan refinancing enables you to choose a fixed or variable interest rate. While a fixed interest rate will not change over time, a variable interest rate can change during your loan term. In today’s economic environment, you can choose the interest rate type that works best for you as a borrower. With low interest rates, you could get a low fixed interest rate, for example, during the Coronavirus pandemic. This means that your interest will never change, which can help you save money once the temporary student loan relief ends. When borrowers compare fixed and variable interest rates, they find that variable interest rates are lower, but can increase or decrease over time.

You have a student loan repayment plan in place

For millions of student loan borrowers, Coronavirus has impacted the ability to pay student loans. While new policies from Congress and the president have provided some relief for student loan borrowers, the relief is only temporary. That means you will need a student loan repayment plan in place sooner rather than later. Student loan refinancing is one effective strategy to get a student loan repayment plan now before temporary student loan relief ends.

Student Loan Refinancing Disadvantages

There are several considerations if you choose to refinance student loans during the Coronavirus pandemic:

Federal student loan payments are paused

President Donald Trump initially paused federal student loan payments for 60 days through executive action. Congress further paused federal student loan payments through September 30, and Trump extended the payment pause through year end. During this period, student loan borrowers aren’t required to make any federal student loan payments. If you choose to refinance federal student loans, you would receive a new private student loans instead and would be required to make student loan payments in the normal course. However, the benefit is that you would get a lower interest rate and save money.

Federal student loan interest set to 0%

In addition to federal student loan payments being paused, the interest rate on federal student loans during this period is set to 0%. This means that no new student loan interest will accrue on your federal student loans during this period. While this is good news in the short-term, remember that this is only temporary. Once this student loan relief ends, your regular interest rate will resume and you will be required to make regular payments on your current student loan balance.

No student loan debt collection

If you defaulted on your federal student loans, there is no student loan debt collection during this period. Student loan default means you haven’t made a student loan payment in at least 270 days. If you are struggling financially, it’s important to remember that you can contact your student loan servicer or lender in advance to discuss potential payment options.

Final Thoughts

Even though Coronavirus may have impacted your student loans, it’s important to determine if student loan refinancing is the right choice for you. You can also learn how much money you can save with student loan refinancing.

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