Beware of private student loan refinancing programs

Article written by Benefits of Education, a blog about education

Many college graduates are carrying hefty student loan balances and may have to forgo their monthly earnings for quite some time to pay it off. They are looking for ways to lower their monthly payments. Many private student loan programs offer lower interest rates to refinance their Federal student loans. This is one way to reduce monthly payment on student loans. However, many may lose more valuable protection offered for Federal student loans by doing so.

Some of the protections under the Federal student loan program include access to income based repayment programs, debt forgiveness under certain conditions, generous forbearance and deferred loan payment options. None of these are available with the private loan refinancing programs except lower interest rates.

On the other hand lower rate refinancing may not be available to all borrowers. Private lenders are scrutinizing candidates more carefully and looking at current employment to see the repayment capacity and review credit worthiness of applicants. Some even look at the trade that applicants are engaged in such as medical, law and engineering applicants getting more attention. Rates could start around three percent compared to some of the Federal student loans that carry a rate starting around 8.5 percent.