I am a clergyman and have made student loan payments “automatically, without fail” for 15 years – yet I still owe money. Now I want to retire. What should I do?
Question: I’m a clergyman, which is supposed to be a qualifying position for student loan forgiveness. However, my loans are said to be ineligible because I failed to consolidate them. This despite having made payments automatically without fault for over 15 years. My loans are managed by Navient, so it’s only on paper it seems that they’re unconsolidated. I plan to retire in a few months. According to my current repayment schedule, the loans will be repaid in 4 years. If I refinance, the period is extended and the repayment is lengthened dramatically. Is there an interest in refinancing now?
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Responnse: The first thing to consider is that you can actually qualify for loan forgiveness now – and that you should contact your lender to see. Anna Helhoski, student loan expert at NerdWallet, says borrowers whose past payments weren’t eligible for public service loan forgiveness because they hadn’t consolidated or weren’t in the right repayment plan have a second chance to qualify. “There is a PSLF waiver in effect until the end of October 2022 which makes previously ineligible payments eligible for loan forgiveness. All borrowers who believe their payments may have reached the 120 required for release should submit the PSLF application available on the student aid website because there is no downside to submitting an application,” says Helhoski. Additionally, beginning in July 2021, clergy and others engaged in religiously oriented work are now eligible to participate in the PSLF program.
When it comes to your question about refinancing, there’s no concrete yes or no answer – experts recommend instead weighing the pros and cons of refinancing, given your current situation. Refinancing can result in lower interest rates, lower monthly payments, payment consolidation, and the addition or removal of a co-signer. On the other hand, refinancing can mean removing federal loan protections, being locked into a repayment plan, and having to meet eligibility criteria.
Certified Financial Planner Don Grant says you need to consider whether the refinance will consolidate multiple loans into one with a lower effective interest rate — and watch for any prepayment fees or penalties on a refinance. “If a fee is offered, do not use this company. There are too many places you should be able to find to refinance your student debt at no cost,” says Grant. Even though there are no apparent fees to refinance, you’ll have to watch out for prepayment penalties, onerous late fees, and high collection fees if you fail to repay the loan. Grant recommends asking the lender for a fee schedule that lists all of the fees you may encounter during the term of the loan. Since the goal of a refi is to lower the interest rate while paying it off in four years, it’s wise to avoid prepayment penalties.
Note, of course, that “extending the term of the loan can also increase the total interest you’ll pay,” says Grant. “This may be the case even if the effective rate is lower [and that] may be worth it if your monthly payment is significantly reduced. You could actually increase your monthly cash flow because of the lower payment. » If the monthly difference between the new loan and the original loan is invested, it can be worth more than the increased interest you pay for the loan.
If, however, you are someone who is both close to retirement and close to the finish line of student loan repayment, the choice to refinance is yours. “You can benefit from a lower interest rate on your student loans by refinancing, but if it extends your payment period beyond your finish line, there may not be much difference,” says Helhoski. Consider how this would affect the amount you would pay in interest before your refinance if you are close to paying off your debt.