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Bar News - January 20, 2016

Morning Mail: Be Careful When Refinancing Student Loans

I saw the “Student Loan Refinancing Resources” listed in your past issue, and was surprised there were links to websites offering to refinance federal student loans into private student loans. I saw the “disclaimer” next to the links, but people need to be careful about this decision.

Giving up the rights of a federal student loan borrower for a lower interest rate is seldom a good idea. Federal loans don’t go into default until a borrower gets 270 days behind, but private loans are in default after the first missed payment. Federal student loans can remain in good standing with a $0 repayment, even after someone loses a job. Private student loans often require a co-signer, but federal loans do not. If a co-signer on a private student loan files bankruptcy, this can cause the loan to go into default, accelerating the entire debt, even if the other obligor has kept the payments current. Federal loans go into administrative forbearance during a bankruptcy.

Citizens Bank is aggressively targeting New Hampshire consumers to refinance student loans. Paying off a small loan at a lower interest rate might be worth considering, but even then, you may regret giving up your federal rights, if one of life’s disasters befalls you during the repayment term.

I know an attorney with $100,000 of federal loans who had a $0 payment right after law school, when times were tough, under a federal repayment plan that won’t require repayment of all the debt if she cannot afford it. Private loans are notorious for not working with people facing financial issues. That is one of the biggest areas of complaint at the Consumer Financial Protection Bureau’s government website.

Richard Gaudreau
Salem, NH

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