– In today's video, we are gonna answer a question that Julie submitted about what the downsides are of refinancing her studentloans with a private company.
If you have any questions like this and feel free to sendme a message or an email and I'd be more than happy to answer them on a video like this.
Julie's question is,'Jared, I'm currently paying off a federal student loanfor my masters degree.
It's currently at sevenpercent fixed interest rate.
' Okay, that's better than mine was.
'I got a letter in the mail from a private loan service company offeringtwo point nine percent variable interest rate orthree point five percent to five percent fixed interest rate.
' There's a little range there.
(sad sound effect) 'What are the downsides of refinancing with a private loan company?' (punching sound effect) In case you don't know,when you refinance your federally backed student loanswith a private loan company, you're essentially turning yourloan into an unsecured loan.
So kinda like a credit card when you borrow money on your credit card.
So one of the downfallswhen you take a federally backed student loan andturn it into a private loan with a private loan company, you're essentially losingout on some protections that you get when you havea federally backed loan.
So usually, types of forgiveness.
So if you ever become disabled,or anything like that, you basically wipe outthat kind of protection.
Also, there's certaintypes of payment plans and deferrals that you canget through the government if you have federallybacked student loans, but if you don't and you switch it to a private loan company and youdecide to refinance with them, you're essentially losingall of that protection.
The next thing is surroundingthe interest rate.
Now variable interest rates, sure the two point ninepercent sounds really good, but you have to remember thatwith any kind of variable interest rate they canraise it whenever they want.
You're not gonna be surein the future when they're gonna raise it and by how much.
They're more often gonna raise it than they are gonna lower it.
So always keep that in mind with any kind of variable interest rate.
Another thing to keep in mindsurrounding the interest rate is with this three anda half to five percent fixed interest rate that they'resaying they could give you, remember that the paperthat you got in the mail, it's kind of a marketing ploy.
While they might potentially give you between three and a half andfive percent interest rate if you refinance with them, that might not always be the case.
Now the three and a half percent, that's sounds really goodand if you can get that, I mean sounds pretty enticing, but the problem is theyprobably don't offer that three and a halfpercent to very many people.
A very small percentageof people that call them.
So always keep that in mind, it's definitely worthcalling to check it out, but don't get set on thefact that they're going to offer you the three and a half percent.
When you apply for one of these refinances with a private loan company, they're going to do a hardpull on your credit report.
So that's going to lower your credit score and that stays on yourcredit report for two years, so always keep that in mindwhen you do go to check out what the rate will be foryou in this situation.
If you're really on the fence and not sure what you should do, then just keep yourloans the way they are, backed by the federal government.
That way you have theprotection that you have and you don't have to worry about it.
And then just focus onputting as much money towards your loans as you possibly can.
Yes, I want you to save moneywherever you possibly can, but to lose that protection,if you're not sure, if your gut is saying 'I don't know', then just stay the course, pay extra, forget about it, and move on.
(punching sound effect) Thank you so much forchecking out this Q&A session.
I hope you found some value in it.
Make sure you hit thatlike, subscribe button and leave a comment down below.
I'll see you next time folks, love you! Adios!.