When you first took out your student loans you may have signed up under a program where you chose the lender and they offered you the Stafford loans under the federal program. These loan companies have to follow the guidelines set up by the federal government. They will work with you the same way the federal government will in working out a payment plan and give you a forbearance when needed, and they may offer you income based loan payments. However you may be getting information about refinancing directly under the Direct Federal Loan program.
You may be considering refinancing so you can qualify for a loan forgiveness program or income based payment options. It is important to understand the different terms of the loan, and what your current loan company can offer you through your loan, before you make the final decision about what you should do. Each individual situation will have a variety different factors that may change the best outcome for the situation.
First you need to consider the interest rate and how quickly you are going to be able to pay off of the loan. If you current qualify for an interest rate that is lower than four percent, you may want to stay in your current loan, if you are close to paying it off. The savings on the interest rate will make it easier to pay off your loan. And you may not benefit from the other repayment programs.
If you are interested in a loan forgiveness program, you may need to refinance into a Direct Federal Loan. This loan is the one that qualifies for the loan forgiveness programs offered through the federal government. There are three different programs. The teacher student loan forgiveness program will forgive some student loans after five years of teaching. The Public Service loan forgiveness program will forgive student loans after ten years of payments. The Income Based Forgiveness program will forgive the amount after twenty-five years of payments. If you will not pay off the loan before the period of time required to qualify for forgiveness then you may want to refinance into a Direct Federal Loan.
If you are only going to shave a year or two off of the loan, you should also consider how changing your interest rate will change your payment amount and how much it will really save you over time. For example if you currently owe $20,0000 you may increase your monthly payment by around by $20.00 a month. This is not significant, but you should also consider how likely you are to continue working in the job for the entire term of the loan forgiveness program. If you do not think you will stay in the public sector for the next ten years, you may increase the amount that you pay over the life of the loan and not qualify for the forgiveness.
Your current job stability and the likelihood of staying where you are for five years is the biggest factor you should consider in deciding to change your loan to a federal direct loan. If you are not going to be able to put in the time required, it makes more sense to stay in the lower interest loan. Additionally it may make more sense to pay off the entire loan amount quickly, so you can save money on interest. If you find that your financial pictures improves, you may just want to pay the loan off so that you do not have the loan hanging around after you have finished with school.
If you do decide to consolidate or refinance your loan under the Direct Loan program you will need to visit the federal student loan website to complete an application. It is not a difficult process, but you will need to continue to make payments to your current company until all of the paperwork has gone through. Additionally you may qualify for a slightly lower interest rate if you sign up for an automatic payment.