If you have student loans, you may be fielding offers to refinance that debt. But experts say many may not see a lot of benefit from refinancing right now, especially in light of ongoing changes with federal student loans.
Budgeting app Mint sent an advertising blast on behalf of an advertising partner to users this week with the subject line: "Now may be a good time to refinance your student loans and get up to $400."
The fine print revealed that online loan marketplace LendKey would provide $400 payments to those who refinance their student loans through LendKey's lending partners. But only loans over $100,000 would get the $400 bonus. Refinancing a loan of less than $20,000 would only receive a $100 bonus and those with loans between $20,000 and $100,000 would be eligible for a $200 payout.
Mint said in a statement to CNBC Make It that the email was sent to users who had a "student loan" category transaction in the last 90 days, so it's likely they're paying private student loans versus federal loans. Refinancing federal loans right now could mean losing protections and benefits.
SoFi, another major student loan refinancing company, offers users $10 to check what their refinance rate would be. There's no mandate to actually refinance in order to take advantage of SoFi's offer and the company provides a notice to carefully consider the changes to your loans should you opt to refinance.
Mint's offer is not uncommon. "Many of the private lenders offer borrowers a few hundred dollars to encourage them to refinance," says Mark Kantrowitz, a student loan expert. But while a couple hundred bucks may sound like a lot of money, many Americans are likely better off skipping these types of offers — especially those with federal student loans.
That's because due to the Covid-19 pandemic, the Department of Education paused federal student loan payments through September and waived interest rates. "The interest waiver is the equivalent of a 0% interest rate. Private refinance can't beat that," Kantrowitz says.
Beyond the zero interest and paused payments, federal student loans have a lot of protections and benefits that borrowers could lose if they refinance federally-backed loans into a private loan, Kantrowitz says. Those benefits typically include low fixed-interest rates, longer deferments and forbearances, income-driven repayment plans and the possibility of loan forgiveness.
Additionally, if you have federal student loans, you may want to wait to refinance until there is more clarity about any potential student loan forgiveness. President Joe Biden repeatedly talked about a $10,000 federal student loan forgiveness during his campaign, says Jake Northrup, a certified financial planner and founder of Rhode Island-based Experience Your Wealth. "There is no harm in waiting," he adds.
On the other hand, if you have private student loans, they don't qualify for the paused payments or interest waiver. Private student loans make up about 8% of the total $1.7 trillion national student loan debt, according to the MeasureOne Private Student Loan Report released in December.
If you can get a lower interest rate on your private loans through refinancing, now might be a good time to think about doing it. That's true even if you refinanced in the past, even as recently as last year since you typically don't have to pay upfront fees with many lenders, unlike mortgage refinancing.
"Interest rates have continued to move lower, which means you can continue to lower your interest rate and possibly receive cash bonuses for refinancing with certain companies," Northrop says.
But again, experts caution that you want to set yourself up for long-term success. Don't simply look at the bonus, thoroughly examine the terms and conditions to determine if the loan will serve your best interests in the long run.
Ideally, you want to consolidate at a lower interest rate than the other payments had on average. But be aware that many lenders require a shorter repayment term to get the lowest fixed interest rates, which can lead to higher monthly loan payments, Kantrowitz says. To help, Nerdwallet has a student loan consolidation calculator that can help you determine if the new loan saves you money.
In the end, like with the LendPay offer, make sure you read all the fine print involved and that you understand all of the terms of any potential refinancing agreement.