The Benefits and Drawbacks of Teacher Student Loan Refinancing

Teacher student loan refinancing is one way to get control of your student loans, but it isn’t always the best choice. If you're an educator, you have several student loan forgiveness options that might keep more of your wages in your wallets.

Teachers, pull up a seat and take some notes to decide if student loan refinancing is a route you want to take.

Overview of student loan refinancing

Student loan refinancing is offered by banks, credit unions and online financial lenders. Borrowers choose to refinance their student loans to get a better interest rate or different loan terms. When you refinance, the new lender pays off the original loans and issues you a new private student loan.

You can refinance multiple loans at once. This is called private loan consolidation. This can make it simpler to manage your student loan payments. But even if one monthly payment sounds easier, student loan refinancing for teachers isn’t always a good idea.

Student loan refinancing for teachers

Before diving into your options for paying off student loan debt, you need to know what types of student loans you have.

You can find a list of all your federal student loans and your loan servicer by logging into the National Student Loan Data System. If you have private student loans, you can find your lender information on your credit report. Go to AnnualCreditReport.com for a free copy.

Federal student loans and forgiveness

Teachers give everything to their students. Take the time to keep that hard-earned money in your pocket. Student loan forgiveness programs are one way to do that.

You’ll want to investigate the following programs:

• Teacher Loan Forgiveness Program: Can forgive between $5,000 and $17,500 of student loan debt, depending on the subject area you teach. You can apply for forgiveness after five consecutive years of service. You must teach full-time at a qualified low-income school or educational service agency.
• Perkins Loan Teacher Cancellation: If you have Federal Perkins Loans and are a full-time teacher, you may qualify for Perkins Loans Teacher Cancelation. You must serve low-income families, work as a special education teacher, or teach math, science, in the field of bilingual education or any subject area with a shortage of qualified teachers.
• Public Service Loan Forgiveness (PSLF): Can eliminate your remaining student loan debt balance after 120 qualifying payments if you work in the public sector. Elementary school teachers and secondary school teachers who put in the time and get employment certification may qualify.
• Income-driven repayment (IDR) forgiveness: Forgives your remaining student loan debt balance after making payments for 20 to 25 years on the proper repayment plan.
• State-specific teacher loan forgiveness programs: Available as an incentive to encourage teachers to work in underserved communities.

Before refinancing your student loans, see if you’re eligible for any of the above programs. A good place to start is by looking at your employer. For example, private school teachers at a for-profit school won’t qualify for loan cancelation through PSLF.

Refinancing private teacher student loans

If you have private student loans, you should definitely look into teacher student loan refinancing.

Shop around to make sure you’re getting both a lower interest rate and the terms you want. A reduced monthly payment sometimes only means you’re paying the loan off over a longer period of time. This would mean paying more in interest fees, too. Compare your offers before saying yes to refinancing your student loans.

Federal student loan benefits you may not want to lose

If you can’t qualify for student loan forgiveness or don’t want to wait that long to have your loans forgiven, don’t refinance to a private student loan yet. Federal student loans, like Direct Loans, offer borrower protections such as:

• A grace period
• IDR plans
• Fixed interest rates
• Consolidation with a Direct Consolidation Loan
• The ability to postpone payments due to financial difficulty
• Deferment
• Forbearance

If you refinance your student loans, you’re losing federal student loan benefits. You’d be jumping into a private student loan with a private lender.

Private student loans can still get a fixed interest rate. Some lenders may even offer payment plan flexibility. But it’s well known that private student loans have fewer borrower options than federal student loans.

Bottom line: The only time it’s a good idea for a teacher to refinance student loans is if you have private student loans, or you’ve decided to let go of all the benefits of federal student loans.

Can teachers refinance student loans with their salaries?

When you refinance a student loan, you need to meet certain eligibility requirements. The requirements vary by lender. But your teacher income and credit history will be a big factor in getting you the best rates.

Because teachers' salaries vary by level taught and state, there’s no general rule for teachers meeting refinancing student loan requirements. What you can do is calculate your debt-to-income ratio (DTI). Divide your total monthly debt payments by your gross monthly income — this will give you your DTI ratio percentage.

According to the Federal Deposit Insurance Corporation (FDIC), anyone with a DTI above 50% won’t get a prime loan. The experts here at Student Loan Planner® recommend keeping your DTI below 40% to get the best rates on student loan refinancing.

A low DTI ratio and good credit score mean you can refinance your student loans even on a teacher salary. If your bank accounts are in good standing and you have savings, this can increase your chances of a good offer.

That said, you always have the option of bringing in a cosigner. You may need to do this if you don’t meet the eligibility requirements from the lender on your own.

Cosigners are 100% responsible for the loan if you miss a payment. If this liability falls on them, it could cause tension in the relationship. Be sure you’re financially stable enough to refinance before asking someone to sign off on the loan.

Teacher student loan refinancing: Is it right for you?

Teachers with federal loans need to sign up for a student loan forgiveness program, then enroll in an income-based repayment plan. Teachers who work at a for-profit school with federal student loans can at the very least take advantage of federal student loan benefits. They may also look into the Teacher Loan Forgiveness Program and IDR forgiveness.

The general rule here is that teachers with federal student loans shouldn’t refinance and get a new loan.

Teachers with private student loans should look into refinancing. Research the minimum eligibility requirements to make sure your income and credit history can qualify you for a better rate. Cautiously consider a cosigner if needed.

If your situation doesn’t seem to fit into any of the general rules, then reach out to us. The team at Student Loan Planner® is passionate about helping everyone get out of student loan debt.