As many student debt borrowers already know from their own research, student loan refinancing is when an individual contracts with a new lender so that their student loans are paid off and they pay the new lender a lower interest rate. Student loan refinancing is attractive to student debt borrowers facing a number of situations since this can reduce the amount of interest a borrower pays over the life of the loan. Due to recent developments, borrowers may ask if refinancing is still worth it, given the steps borrowers must take in order to refinance their student loans. In many situations, refinancing is still worth it, and this is especially true in the post-COVID era.
The Student Loan Pause May Soon End
During the COVID-19 pandemic, payments on federal student loans have been suspended. The government wanted people to focus on living costs and other expenses and not student loan payments during this difficult time. Moreover, since many people lost their jobs during the COVID-19 pandemic, or faced changes to their work schedules, it might have been more difficult for borrowers to make payments during the pandemic than before the pandemic.
Individuals may not have wished to refinance federal student loans when loan repayments were paused. This is because refinanced loans were not subject to the federal student loan pause and federal student debt borrowers did not need to make payments for around two years. Of course, interest has been accruing on this federal student debt, but the ability to forgo payments was a big windfall for many student debt borrowers.
However, the federal student loan pause is set to expire in May. It is unlikely that this pause will be extended since the pause has already been extended numerous times, and the country is slowly working itself out of the pandemic. Accordingly, borrowers will once again need to repay their federal student loans with relatively high interest rates. Such borrowers may consider refinancing their debt so that they can have lower interest rates than they had before.
Interest Rates May Go Up
Another reason why refinancing is still worth it is since interest rates may go up in the future. Anyone who watches the news lately can tell that we are currently facing the worst inflation in decades. This is due to a number of factors, including supply chain issues, conflict around the world, and other situations. The prices for pretty much everything has increased, and the interest rate on debt has risen to keep up with inflation.
It is possible that refinancing rates will be less favorable in the future due to inflation and all of the consequences inflation may cause. As a result, individuals should consider refinancing now so that they can lock in an interest rate before they are unable to secure favorable interest rates down the line. Interest rates generally do not change during the life of a refinanced loan, so borrowers can lock in a relatively lower rate now that could benefit them for the entire time it takes them to repay the student debt.
The Economy May Be Improving
As the world emerges from the COVID-19 pandemic, the economy seems to be improving. Unemployment rates have gone down, and incomes in many industries are increasing as employers need to work harder to attract and retain employees. When the economy was not performing well, student debt borrowers may have more of a need for federal student loan relief like income-driven repayment plans and forbearance options since they have a diminished ability to repay their debt. This might lead less people to refinance their debt since refinanced loans are generally not allowed to realize the benefits of income-driven repayment plans and public service loan forgiveness if this is applicable to a borrower’s situation.
However, in a better economy, individuals may have higher incomes and more disposable money that they can throw at student loan repayment. Accordingly, individuals may wish to repay their student loans faster and not under the ten-year or twenty-year (or longer) repayment plans that are needed to get debt forgiveness under income-driven repayment plans. If individuals have the goal of repaying their debt as soon as possible, they will try and hunt for the lowest interest rate so that they pay less in interest and can attack the principal of their loans. Accordingly, student loan refinancing is still worth it for such borrowers.
Everyone looking to refinance their student loans should do their research and look for a student loan refinancing partner that will meet their needs. Student Debt Diaries has partnered with Splash Financial, a leading student loan refinancing company, and we recommend that individuals consider this student loan refinancing company. In addition, if you refinance your loans through the link above, not only will you get a solid interest rate with Splash Financial, but we may receive an incentive we can use to keep the lights on at Student Debt Diaries. Accordingly, we definitely suggest you check out refinancing offers at Splash Financial.
All told, refinancing is still worth it for a number of student debt borrowers since the student debt landscape is different now than it was over the last few years. Accordingly, borrowers should more seriously consider refinancing and do their research to find the best student loan refinancing partner for your particular needs.