After much consideration, I decided to refinance my student loans with a private lender last year. It’s a big decision so I wanted to share some insight that may help you decide if you’re considering doing the same. Below I’ve listed some pro’s and con’s to refinancing with a private lender that you may find useful.
- You may be able to get a better interest rate. You should shop around and get quotes from a few lenders to find out where you stand. My interest rate with Navient after I consolidated into one loan was 6.5% (6.25% after the auto pay deduction). I was able to get an interest rate of 5.75% (5.59% after the auto pay deduction) with my new lender.
- The payment lengths are usually more flexible. Most times you have more options regarding loan terms with a private lender. I checked multiple lenders and each offered 3, 5, 7, 10, 15, 20, 25 and 30 year terms. With a government lender you’re usually stuck with 10, 25, or 30 years. This can be a huge plus if you want to have more push to payoff debt quickly.
- Private lenders can be more flexible with auto debit options. I can change how much I want deducted each month if I want to pay a little extra. With traditional lenders you can only have the minimum payment deducted and you have to manually pay anything extra. This may not be a huge draw, but for OCD psychopaths like myself, I like knowing I can adjust my payment to match exactly what I want to be taken out every month.
- Private lenders sometimes don’t offer better rates. I got a lot of quotes and most did not offer lower rates unless I wen’t with a much shorter loan term – say 3 years. I found the rates overall to be pretty on scale with what federal lenders were offering. Most private lenders draw you in by advertising 3.5%, or 4.25% rates but when you actually get a quote those are for variable interest rate plans. I’m definitely sticking with a fixed rate loan so that wasn’t very helpful.
- They don’t offer as many perks that federal lenders. This includes student loan forgiveness, forbearance, deferment, and income-based repayment. If you aren’t in a stable career field this could be make or break if you lose your job or want to take a break from working and go back to school.
- If student loan reform happens you’re on the wrong end because as a private borrower you won’t reap any of those benefits. If next week Congress decides to cap student loans or forgive a certain amount over a cap you are up s*** creek without a paddle. Sorry, Charlie!
I looked at the pro’s as outweighing the con’s substantially in my situation. I’m in a stable job (knock on wood, I plan to payoff the debt quickly which I believed would be before any type of reform happened, and I work in banking so I’m not eligible for any loan forgiveness. I also have all of the education I plan on getting, so I wouldn’t need any type of deferment.
In the end, I decided on Citizen’s Bank as my new private lender. They had the best term options and the lowest interest rates (I shaved off about $75 a month in interest by refinancing), as well as a user friendly website. I can also change my auto pay amount whenever I want. The application process was really easy and only took about a week to finish up. They also paid off my Navient loan quickly so I wasn’t juggling two payments at the same time. Have you refinanced? If so, what was your experience like?