(InvestigateTV) — People interested in refinancing a student loan are looking at rates ranging from 3.94% to 13.99%, according to Bankrate. However, interest rates should not be the only consideration in the decision-making process.
Kate Wood with NerdWallet said that’s especially true when talking about federal student loans.
She said refinancing them isn’t going to make sense for a lot of borrowers because they would be giving up a lot more than they would potentially gain by changing the interest rate—mostly losing federal protections.
“Even for private loan borrowers, many are not going to have refinance math that works out,” Wood said. “Even though interest rates are going a little bit lower now, they are higher relatively than they’ve been in recent years or even say, 10 years ago. So, you might not be looking at a better interest rate.”
Wood said private loan borrowers may be interested in refinancing if they can bring that interest rate down by at least half of a percentage point.
She said to do this they will want to also make sure they have a stable income and a relatively high credit score.
“If you have private loans, refinancing is pretty similar to how it is with other types of loans where it’s really about the interest rate, how you look as a loan applicant,” Wood explained. “Is this going to make sense to you? With federal student loans, because federal student loans work differently from other types of loans, interest rate is almost a secondary consideration for some people.”
Wood explained that this is because the focus is more on potential loan forgiveness or life-altering events such as a serious illness or job loss. Federal student loan borrowers have stronger protections in these situations and are not immediately subjected to collections.
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