Student Loan Refinancing
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Student Loan Refinance 101
Student Loan Glossary
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When you take out federal student loans, the Department of Education assigns a loan servicer to you. Your servicer collects payments, charges fees and provides customer service on behalf of the federal agency.
But federal student loan servicers are private companies that contract with the government, and sometimes one of the parties decides not to renew a contract when it expires. When that happens, there can be federal student loan servicer changes.
If you’ve recently received a notice that your federal student loan servicer has changed or will soon change, here’s what you need to know.
In 2021, the contracts of three federal student loan servicers were set to expire, and the private companies that had contracted with the Department of Education decided not to renew them. That includes:
The reasons why the three companies decided to end their partnerships with the federal government are unclear. But the result is that millions of federal student loan borrowers will have their student loans transferred to a new servicer if it hasn’t happened already.
That said, things aren’t necessarily straightforward. While Navient and Granite State Management and Resources planned to completely transfer all of their federal loan portfolios to other servicers by the end of 2021, FedLoan Servicing has agreed to continue servicing loans well into 2022, giving borrowers more time to prepare for the switch.
The remaining federal student loan servicers include:
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Both Navient and Granite State Management and Resources were set to complete the transfer process by the end of 2021. Navient transferred its portfolio of federally held loans to Aidvantage, while Granite State loans were transferred to EdFinancial.
Note, however, that Navient still services commercially held federal student loans, which include loans from older programs where the Department of Education was not the loan originator.
FedLoan Servicing has transferred some of its loans to MOHELA, but after extending its contract for another year, it won’t be until the end of 2022 that remaining FedLoan borrowers will see their loans moved to one of the other federal loan servicers.
The servicer will also continue to administer the Public Service Loan Forgiveness program during that time, after which a different servicer will take over.
For federal student loan borrowers whose loans have already been transferred, you likely haven’t noticed any changes yet. This is because President Biden once again extended the student loan payment pause through the end of April 2022. So unless you’ve been making payments during the moratorium period, you may have received a notice, but that’s it.
But there are a handful of ways this switch can impact you, so it’s important to address them:
Some federal student loan servicers are notorious for providing poor customer service. Just recently, Navient settled a lawsuit with 39 state attorneys general, which included $95 million in restitution payments for 350,000 federal student loan borrowers that the company has allegedly directed into forbearance instead of income-driven repayment plans or loan forgiveness programs.
Other servicers have received thousands of complaints from customers who have experienced a number of problems. If you’ve had a bad experience or you’ve researched your new servicer and have found several complaints, you may be wondering what recourse you have.
The good news is that whether or not you’ve been impacted by recent federal student loan servicer changes, there are a couple of steps you can take if you’re unhappy with your current or new servicer.
While you can’t choose your loan servicer when you first take out loans, you can choose which one you want to work with when you apply for a Direct Consolidation Loan.
The federal consolidation program can also come with some other benefits:
Unfortunately, one thing the federal consolidation program won’t do is help you save money. Instead of giving you the chance to reduce your interest rate, it’ll round up the weighted-average rate of the loans you’re consolidating, then round up that figure to the nearest one-eighth of a percent.
That’s not a huge increase, so it may be worth it if it means a better experience and some of these other benefits. But keep the extra cost in mind before you make that decision.
Refinancing federal student loans isn’t for everyone, especially if you need or anticipate needing access to income-driven repayment plans, generous forbearance options and loan forgiveness programs.
However, in certain situations, refinancing can not only help you get rid of your federal loan servicer, but it can also come with a variety of other benefits, including:
Consider what you’re giving up before you decide to refinance, but if it’s a good fit based on your qualifications and goals, it can definitely be worth it.
Student loan refinancing combines your current loans into a single loan with a new rate and term. See how much you can save by entering your loan information below, or by getting quotes from multiple lenders using Purefy’s rate comparison tool.
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If you’re seriously considering refinancing your federal student loans, it’s important to think through the process and the potential results carefully before you proceed.
Student loan refinancing involves replacing one or more existing loans with a new one through a private lender. You can refinance federal loans, private loans and even both together.
Refinancing typically requires a credit score in the mid-600s and an income of $40,000 or more. But if you want to secure the best terms possible, you’ll want a credit score in the 700s and an annual income nearing six figures.
According to Purefy data, the average FICO score of student loan refinance borrowers is 774, and the average annual income is $98,156.
For a deeper dive, take a look at both the benefits and drawbacks of refinancing to decide if it’s right for you.
There are many benefits associated with refinancing your student loans. Here are some of the most prominent ones to consider:
While there are clear benefits to refinancing your student loans, there are also some potential drawbacks you’ll want to keep in mind as you decide the right path for you. In particular, here’s what you should know:
Because every situation is different, it’s important to know what your current circumstances are, as well as your goals, to help decide if refinancing your student loans is the right move.
Since the beginning of the coronavirus pandemic, interest rates for student loan refinancing have seen record lows. This is primarily due to the Federal Reserve’s decision in March 2020 to cut its federal funds rate to near zero, along with its decision to keep the rate low ever since.
The federal funds rate is the rate at which banks charge each other interest for overnight reserve requirements. It’s also a benchmark that lenders use to determine their prime rate. This rate acts as an index for short-term interest rates, which can include student loans, personal loans, credit cards and other forms of financing.
Because the underlying index rates have been so low, so have the rates lenders use to determine how much to charge borrowers.
It’s also the reason why now might be the best time to refinance student loans. Federal Reserve officials and economic experts have discussed the idea of the Federal Reserve increasing rates again in 2022, which means that refinance rates will start going back shortly thereafter.
That said, it’s important to consider the fact that the student loan payment pause is still in effect on federal student loans until May 1, 2022. It’s unclear whether the Biden administration will extend the moratorium again. The Department of Education signaled in December that the payment pause would end with the previous extension in January 2022. But the White House made the decision just a few days later to push the deadline back again.
If you’ve been taking advantage of the payment pause to get back on your feet financially, now might not be the best time to get rid of that benefit. But if you’re financially able to start making payments again soon, it could be beneficial to take advantage of the record-low interest rates before they start to increase again.
Student loan refinance lenders can provide you with an opportunity to save money on interest charges, but not all offers are created equal. As a result, it’s important to take your time to shop around and compare interest rates and other terms to ensure that you get the best deal possible. Here are some tips to help you maximize your savings:
As you compare different refinance lenders, it’s also important to compare what you’re getting with what you currently have. If, at any time, you decide that refinancing isn’t right for you right now, take a step back and reconsider.
While now can be an excellent time to refinance your student loans, it might not be worth it if the overall drawbacks outweigh the benefits.
If you have federal student loans, you may have recently gone through a change in your federal loan servicer. While this process doesn’t generally have a big negative impact on your student loans, there are some things you’ll still want to do to make sure the process goes smoothly:
If you don’t like your new servicer, the good news is that you have a couple of options. The first is to consolidate your loans with another federal loan servicer, and the second is to refinance your loans with a private lender.
If you consider refinancing your loans, take your time and do some due diligence to determine if it’s the right decision for you. You’ll want to think about both the advantages and disadvantages of refinancing and how they compare to keeping your loans in the federal student loan program.
You’ll also want to shop around and compare different offers to ensure that you get the best deal that’s available to you.
The important thing in all of this is to think about how you want to pay off your student loans and research the different tools and strategies that are at your disposal. There’s no right answer for everyone, but knowing your situation and your goals will give you all of the information you need to make an educated decision.
And keep in mind that your decision right now may not necessarily be the right decision down the road. Make sure you reevaluate your approach to your student loans every year or so to determine if you’re still on the right track.
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