Loan Refinancing Risks

• As a result of the coronavirus/COVID-19 emergency, the Federal government implemented emergency relief measures for Department of Education-owned student loans, known as Federal Direct Loans. The relief measures include a suspension of loan payments and a temporary interest rate of 0% on all federally-owned student loans. More information is available here. If you have Direct loans, these relief measures will no longer be available if you refinance your Direct loans into a private loan.
• Federal student loan regulations offer a variety of repayment plans, including income-driven repayment (IDR) plans designed to assist borrowers who are unable to afford their current monthly payment amount. IDR plans allow your monthly payment amount to be adjusted annually based upon your adjusted gross income, family size, and state in which you reside. The outstanding balance, if any, may be forgiven after 20 or 25 years of qualifying payments. These repayment plans will no longer be available to you.
• Under federal student loan regulations, the borrower may be eligible for deferment, forbearance, and other repayment plan options during the life of the loan. If your federal student loan is refinanced into a private loan, some of these options may be unavailable to you.
• Subsidized federal loans qualify for an interest subsidy while in school, grace, deferment, or during certain circumstances under an income-driven repayment plan. This benefit will no longer be available to you.
• Full-time active duty servicemembers may lose certain deferment, forbearance, or other benefits afforded to them under federal student loan regulations.
• Military servicemembers who qualify for a 0% interest rate due to receiving hostile pay will lose the 0% interest rate benefit.
• Borrower benefits of lower interest rates or incentives provided by your current federal student loan lender may be forfeited and could result in you paying more over the life of your loan.
• Borrowers working in certain professions like those employed full-time by a public service organization or serving in a full-time AmeriCorps or Peace Corps position, or those employed as teachers in certain situations, may be eligible for loan forgiveness on some or all of their federal student loans. If you refinance a federal loan into a private loan, you will no longer be eligible to participate in these federal loan forgiveness programs.
• Federal regulations provide the borrower with circumstances where the loan may need to be discharged. If your federal student loan is refinanced into a private loan, some of these options for discharge may be unavailable to you.
• Regulations could be introduced by Congress or the Department of Education at a later date that would provide additional benefits or forgiveness to federal student loan borrowers. These will not be available to you if you refinance your federal loans into a private loan.
• Once a federal student loan is consolidated into a private loan, the process may not be reversed in order to re-establish the original federal loan and the benefits that were forfeited.

The risks and benefits listed above are those with a high impact and those most frequently utilized by a federal student loan borrower. The list is not meant to be a complete list of all benefits or incentives forfeited as a result of refinancing your federal student loans into a private loan.