EMERYVILLE, Calif., Feb. 5, 2018 /PRNewswire/ -- What happens when federal student loan borrowers refinance? Refinancing might be right for certain borrowers, but refinancing federal loans means losing out on certain borrower protections, including the opportunity for forgiveness. American Financial Benefits Center (AFBC), a private document preparation company that specializes in applying for repayment plans, cautions federal borrowers when it comes to refinancing.
"The things that are lost when a federal borrower refinances can be important," said Brandon Frere, CEO of AFBC. "One of the biggest is forgiveness. Many people appreciate income-driven repayment plans because they know forgiveness is always an option at the end of the life of the loan."
Refinancing — which means a new loan pays off an existing loan or loans — is possible only in the private sector. This means a borrower must take out a private loan to replace the federal loan, so any protections that are exclusive to federal loans evaporate upon refinancing. These include, but are not limited to:
- Possibilities for forgiveness: Student loan forgiveness can come in many forms for federal student loan borrowers. One of them is forgiveness after a 20- to 25-year period if the borrower is in an income-driven repayment plan (IDR); another is Public Service Loan Forgiveness (PSLF) after at least 10 years of employment with a qualifying employer. There are various other federal programs that offer loan forgiveness.
- Opportunities to get out of default: There are a couple of ways for federal loan borrowers to get out of default that don't involve immediately paying off the entire balance of the loan: rehabilitation and consolidation. Options for defaulted borrowers of private loans may be more limited and are solely at the discretion of the lender.
- Options when income or life circumstances change: The federal student loan system has several options available for people who experience changes in their life circumstances. These can include changes in income, changes in family size or re-enrollment in school. Income-driven repayment plans, for example, calculate monthly payment obligations based on income level and family size. In-school deferment and forbearance both pause payment obligations for limited periods of time.
AFBC helps borrowers navigate the options that are unique to federal loans. For example, AFBC helps position clients for certain types of forgiveness, including for IDR enrollees and PSLF candidates. And while ideally no AFBC client should be in default, AFBC offers assistance to borrowers who do happen to be in default. AFBC also assists clients in applying for and staying enrolled in IDRs, as well as requesting forbearances in certain circumstances.
To be fair, refinancing may be helpful to some borrowers who have done the math and are sure that the new loan terms will save them money and the payments will stay affordable. Refinancing is ideally for people confident about their financial stability.
"For borrowers who may have more uncertain financial situations, federal loans can offer protections," said Frere. "And for those looking forward to forgiveness after years of repayment, that's just not possible with private loans. At AFBC, we assist people with exploring the options and opportunities federal loans offer, some of which are essential for certain borrowers to stay in good standing with their loans."
About American Financial Benefits Center
American Financial Benefits Center is a document preparation company that helps clients apply for federal student loan repayment plans that fit their personal financial and student loan situation. They adhere to strict customer service guidelines and strive for the highest levels of honesty and integrity.
AFBC is a member of the Association for Student Loan Relief (AFSLR), and each representative on the phone has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).
To learn more about American Financial Benefits Center, please contact:
American Financial Benefits Center
1900 Powell Street #600
Emeryville, CA 94608
SOURCE American Financial Benefits Center