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2021 NerdWallet Best-of Awards Winner for Best Student Loan Refinancing Overall

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Looking Ahead to the Return of Federal Student Loans: How Refinancing Can Help

overwhelmed-by-return-federal-student-loans-2021
Ben Luthi
overwhelmed-by-return-federal-student-loans-2021

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided some significant relief to the majority of federal student loan borrowers. To those with eligible loans, the U.S. government suspended payments for a period to help borrowers who are struggling.

But when these benefits end on September 30, 2021, you may be wondering what to do, especially if your financial situation hasn’t improved. For starters, when does the CARES Act end, what options do you have when that happens, and how can refinancing your loans help?

When does the CARES Act end?

The CARES Act is more than just a student loan relief bill, and there are several provisions that will continue after the student loan portion ends. For federal student loan borrowers, however, their payment suspension period ends on September 30, 2021.

This means that the end of the CARES Act for student loans means you’ll need to find another way to handle your student loans going forward. If you’re still experiencing financial hardship, your options may be limited. But if you’re in relatively good shape, refinancing your student loans may offer some benefits.

Why refinance student loans

Refinancing your student loans isn’t the only way to manage them after the end of the CARES Act. And if you’ve fallen victim to the economic downturn and have little or no income, it may not even be possible.

But depending on your situation, it could provide savings and flexibility. So why refinance student loans? Here are the potential benefits:

  • Lower interest rate: With the Federal Reserve cutting its interest rate to nearly zero in March, lenders of all kinds have reduced their interest rates for new borrowers. This means that now, more than ever, you may have a chance to score a much lower interest rate than what you’re paying now. Depending on your situation, refinancing could save you hundreds or even thousands of dollars.
  • Lower monthly payment: With a lower interest rate, you’ll typically also get a lower monthly payment, which can make a huge difference if your budget is tight.
  • Budget flexibility: Even if you don’t qualify for a lower rate, you may be able to apply for a longer repayment term, which will also reduce your monthly payment. Just keep in mind that a longer term will result in higher interest charges over the life of the loan. Alternatively, you can opt for a shorter repayment term and pay off your debt sooner — just be sure you can afford the new monthly payment.
  • Transfer parent loans to a child: If you borrowed money on behalf of your child, refinancing the debt in their name can take the financial burden off of your shoulders. Remember, though, that both parties must agree to make this happen.
  • Remove a struggling co-signer: If you took our private student loans with a co-signer during school, refinancing the debt into your name only may provide some relief to them if they’re struggling because of the coronavirus pandemic and economic downturn.

While refinancing your student loans can provide some solid perks, it’s not for everyone. Here are some things to consider as you determine the right path for you:

  • You’ll lose federal benefits: When you refinance federal loans with a private lender, you’ll lose access to certain benefits, including loan forgiveness programs, income-driven repayment plans and generous deferment and forbearance options. If you think you’ll need one of these programs going forward, consider keeping your loans where they are.
  • Not everyone qualifies: You typically need a high credit score and a solid income and employment history to get approved for the best student loan refinance terms. If you don’t qualify on your own, you can apply with a creditworthy co-signer. But even then, there’s no guarantee.
  • It’s not the best fit if you’re almost done: Student loan refinance lenders typically have a minimum loan amount to qualify. If you’re in the last couple of years of your loan payoff, you may not have enough left to refinance. Even if you do, your savings may not be enough to make it worth the effort.

Take your time to consider all of your options before applying for refinancing. Also, compare rates and other terms through Purefy to get an idea of what offers you’re eligible for with multiple lenders at once.

Alternatives for when the CARES Act ends

Student loan refinancing may be an excellent choice for your student loan debt. But if you’re not sure now is the right time, here are some other options to consider:

  • Income-driven repayment plans: If you have federal loans, these four payment plans reduce your monthly payment to 10% to 20% of your discretionary income. They’ll also extend your repayment term to up to 25 years, after which your remaining balance is forgiven.
  • Deferment or forbearance: Deferment and forbearance programs allow you to get a reprieve from your monthly payments. This is a similar arrangement to what the CARES Act offers. But in most cases, interest will continue to accrue on your loans during deferment or forbearance. Still, it could be helpful as you try to get back on your feet financially.
  • Loan repayment assistance programs: Some employers offer student loan repayment assistance as an employee benefit. Check to see if your employer offers one. If you’re unemployed, include that perk in your research as you look for a new job.

Take your time to make the best decision for you

As with any financial decision, it’s crucial that you take the time to research all of your options and determine which is the best one for you based on your current situation and needs, your budget and your long-term goals.

Because refinancing your student debt doesn’t allow you to change your loans back to federal loans, it may not be the best fit if you’re unsure. But if you’ve gone through the process of comparing refinance rates and you’re confident that refinancing is the best option for you, move forward as soon as the current suspension period ends.

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