Things to Consider Before Refinancing

Is Refinancing or Consolidation Right for Me?

This short video helps you gather your loan information so you can evaluate your current student loan debt situation.

Know your goal before you start.

Are you hunting for lower interest rates or do you want to simplify the repayment process? Or are you hoping to consolidate multiple loans into one new loan so you have one payment instead of several?

Refinancing may improve some or all of the terms of your loan and reduce your monthly payment.  However, you could end up paying more in the long run depending on the changes to your loan terms. For example, if you extend the length of the loan to reduce your monthly payment you may pay more overall interest.

Typically, people refinance their loans to simplify monthly payments or get new repayment terms. Loan refinancing isn’t a good fit for everyone’s circumstances. Whether refinancing helps you depends on factors like what type of loans you have, their interest rates, how long ago you took them out, and whether they came with borrower benefits or repayment options you wouldn’t want to lose.

Many borrowers think consolidating their federal loans will lower their interest rate. With federal loan consolidation (only to be used with existing federal loans) you may qualify for additional repayment and forgiveness options, but you won’t get a lower interest rate.  The interest rate will be a weighted average rounded to the next 1/8% of your existing federal loans.  Federal consolidation simplifies your payment process, but doesn’t necessarily reduce interest rate or your debt burden.

Choices for what to do with your student loan debt. You could:

  1. Leave your loans as they are currently.
  2. Combine your private and federal student loans into one loan.
  3. Refinance only your private student loans.
  4. Consolidate your federal loans in a Federal Direct Consolidation Loan.
  5. Both 3 & 4

To determine what choice is best for you, learn more about private and federal student loans and their benefits. Gather information on your existing student loans and use resources, like this one, to determine other loan options available to you.

This video gives you a good overview of things to consider before you refinance or consolidate your student loan debt. Along with this worksheet resource, the information in this video will help you make a more informed decision about refinancing.

If you have private student loans:

Your private student loans may have come with certain incentives or borrower benefits. If you refinance, these benefits may no longer be guaranteed. You can refinance your private student loans with lenders who offer private student loan refinancing, such as the Maine Private Education Loan Network Lenders.

If you have federal loans:

You can consolidate federal loans through a Federal Direct Consolidation Loan, offered by the federal government. This program allows borrowers to combine any of their outstanding federal student loans into a single new loan but it won’t lower the interest rate. The fixed rate of the new consolidation loan is based on the weighted average interest rate of the loans being consolidated.

However, there is no federal refinancing. Congress sets the interest rate for federal student loans, and most of these rates are fixed by law, no matter how solid your credit or income becomes after graduation.  You may be able to refinance your federal student loans into a private student loan but you cannot refinance federal and/or private student loans into a federal loan.

If you have federal student loans, they come with some benefits that may not apply to you if you choose to refinance with a private student loan lender. Federal Loan benefits and protections do not transfer to private student loans. As part of the refinancing loan application process you will be presented with a summary of benefits you gain and benefits you lose so you can make an informed decision.

Check out this video to learn more about changing federal student loan repayment plans, postponing or reducing your payments, or combining your federal student loans.

Additional programs to help reduce your student loan debt

You may be eligible for these other programs, offered through FAME, which can help you reduce the amount you need to refinance:

Alfond Leaders

The Alfond Leaders student debt reduction program provides student loan repayment assistance to people who live and work in Maine in a STEM (Science, Technology, Engineering and Math) designated occupation at a Maine-based employer.

Learn more about Alfond Leaders at FAME.

Opportunity Maine

The Opportunity Maine Tax Credit reimburses student loan payments for college graduates who live and work in Maine.  

Learn more about Opportunity Maine.

Additional Profession-Specific Loan and Grant Programs

Other FAME-administered education loan and grant programs may be the right fit for you, including some with a loan forgiveness feature.

Visit our Refinance Resource page for more.