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What You Must Know Before You Refi Student Loans

Founder & CEO
Wallis is a mom who spent 10+ years at Goldman Sachs as a banker and investor. She founded AboveBoard as a "safe harbor" where people are treated with integrity and can make big decisions with ease and clarity. AboveBoard's interactive Parents' Financial Guide helps you make the right decisions for your family.

Refinancing student loans to get a better rate is often a good thing, but make sure you’re aware of what you’re giving up, and confident that the trade-offs fit your situation and goals.

Forgiveness Upon Death or Permanent Disability

Federal student loans are forgiven upon the borrower’s death or total and permanent disability. 

Some private students loans offer these terms, too, but not all of them. If forgiveness upon death or total and permanent disability is part of the loan, that will be written in the loan document.

Ask the loan officer / lender's representative to explain how any private loan you're considering would work, then ask them to show you where in the loan documents you can read the language yourself. (This helps you avoid being ensnared by an ill-informed, or ill-intentioned, financial professional.)

Life insurance and disability insurance can be used to "solve" for any differences between Federal loans and private loans, but those come at a cost, so it's good to think through these non-rate aspects of your loans when considering a refi.

Government-Sponsored Loan Forgiveness

Public Service Loan Forgiveness and Teacher Loan Forgiveness are two of the major programs, and these are only available for Federal loans. Once you refi to private loans, you are giving up the option to utilize these programs.

If you don't qualify for or don't care about loan forgiveness programs (either today or in any reasonable future scenario), then this doesn't matter to you!

Deferment and Forbearance Options

While private loans offer some deferment and forbearance options, the terms are usually not as generous as Federal loans.

Always confirm the specific terms of any private loan. Make sure to do that in writing, or be sure to read and understand the loan terms with your own eyes. If the loan officer or lender's representative can't point you to the terms, assume it's not there...and ask to speak with that person's supervisor to find out if it's there at all!

Writing Boring Emails Sucks. Here's A Template to Confirm Your Understanding of Loan Terms

Here's an approach I like, after you've had a verbal conversation:

Hi,

Thanks for taking the time to chat today and answer my questions about the terms of the student loan I'm considering!

Before proceeding, I wanted to confirm my understanding of what we discussed - please let me know if the following is complete and correct. (And if not, what I missed.)

1) [ First important thing you learned / discussed ]

2) [ Second important thing you learned / discussed ]

...[you get the idea]

Thanks!

If the financial professional charged with helping you is unwilling to put things in writing, that is a red flag. It's one thing for them to give you call to clarify (perhaps you misunderstood something and they figured it's easier to chat live), but the result of that call should be re-sending your first email with an additional note:

Thanks for taking the time to call me and clarify what I [missed / got wrong] in my prior email below. Just to make sure I'm 100% understanding you correctly, I now understand that:

[list it out]

Thanks!

If the financial professional you're interacting with is magically never willing to confirm in writing, that is a giant red flag. Ask to be put in touch with a supervisor and / or move on to someone who will confirm your understanding of loan terms in writing.

The reason this matters is that financial institutions and professionals are very aware that written stuff is way better "proof" than a verbal conversation, and much easier to discover in any future litigation / arbitration. 

Financial companies and professionals who (a) know what they're talking about and (b) are not trying to rip you off will be OK putting stuff in writing.