danger sign for student loans

Why You Should NOT Refinance Your Federal Student Loans With Private Loan Companies

One of our members privately mentioned that she has been receiving a lot of calls from companies to refinance her federal student loans.  Now this individual only has federal student loans. She has no private loans.  You may have received similar calls and/or snail mail.  I am taking the opportunity to make this a learning moment and publicly educate both members of Just Do It Afraid and non-members on this issue because it is very, very important you understand this.

DO NOT, I REPEAT….DO NOT lose your mind and refinance your federal student loan balances with a private loan company.  Once you do, the loans cease to be federal student loans and you lose all the protections that come with such loans.  What do I mean by this?  First, let’s make sure you understand the difference between federal student loans and private student loans.

Federal Student Loans versus Private Student Loans 

Federal student loans are provided and administered by the federal government, specifically, the Federal Student Aid office under the U.S. Department of Education.  The interest rates for federal student loans are fixed and remain the same throughout the life of the loan.  Another way you know you have a federal student loan…is if you received the loans by submitting the Federal Application for Federal Student Aid (FAFSA) and the loans are labeled as Direct Stafford loans.  The loans can either be subsidized or unsubsidized.

Private student loans are offered by banks, credit unions and other private financial institutions.  Private loans may have names like ‘smart loan’ or other fancy college focus names. The interest rates for private student loans can be fixed or variable.  If variable, this means the rates can increase or decrease throughout the life of the loan.

Now what do these private loan companies want from you exactly?  They want to buy your federal student loans from the U.S. Dept. of Education by refinancing them.  When your student loans are refinanced, the private loan company pays off the lender, in this case, the U.S. Dept of Education and they now own your loans.  Once the private loan company takes over your loans, it is now a private student loan.

Advantages of Owning Federal Student Loans Versus Private Student Loans

There are many protections in owning a federal student loan versus a private student loan.  Take a look at the comparison table below.

table of federal student loans vs private student loans

Four Reasons Why You May Feel Compelled to Refinance Your Federal Student Loans
  1. You do not know or understand the protections afforded by the U.S. Dept of Education
  2. You are overwhelmed by the multiple federal student loans you accrued during college and/or graduate school
  3. You want all your loans in one big balance so it can be more manageable
  4. You believe you will repay your balance faster or payments will be less
  5. You feel more comfortable owing a bank then the big bad federal government
What to Do?

First, eliminate your fear of the federal government or anything else by taking the time to learn about your issue.  Our motto at Just Do It Afraid… do not fear anything, take time to understand it

Second, there is ONE very good solution available in managing all your federal student loans …consolidate them.  Just call your loan servicer for your federal student loans to start the process. There is no charge.

Third, talk to your federal loan servicer about different repayment plan options if your payments are too high or if you are unable to pay. Remember, many of those plans are income based.  The less you earn, the less you pay each month. Also, forbearance is available if you are having financial hardship.

I understand the burden of carrying student loan debt and it can be depressing.  Don’t get down, get empowered about your student loans!

Wrap Up

Do not be lured by private loan companies to refinance your federal student loans.  You will lose ALL of your federal protections afforded by the U.S. Dept. of Education.  So, ignore the calls and snail mail.

I posted some videos providing in-depth information on the federal student aid program including repaying student loans.  As a member of Just Do It Afraid, you have access to them and the advantage of asking us, mentors, any questions you have.  We will respond within 48 hours.

If you are not a member, you can learn more about our mentorship program and start getting answers about your student loans or any life skill at www.JustDoItAfraid.com

Be wise and stay alert!