Before you jump into another debt commitment – to refinance your federal student loans – it is important to first check and make sure you’re not passing on existing repayment programs from the US Department of Education (DOE). For example, only 25% of Educators and other public employees are taking advantage of repayment programs they’re eligible for which can save big money and even provide loan forgiveness in the future.

The Top-Three Refinancing Issues

Permanent Loss of Benefits From Uncle Sam. Eighty-two percent of student loans are backed by the U.S. government and when you refinance federal student loans with a private company you permanently relinquish your rights to the many repayment programs available from the DOE. In short, it’s a one-way road and there’s no going back. For example, you may have been able to reduce your student loan payments with an income-driven repayment plan. With these plans, your loan payments are capped at 10% to 20% of your discretionary income, making it much easier to manage until you earn more income. Or, if you refinance into a private student loan, you’ll also lose the right to apply for Public Service Loan Forgiveness (PSLF). This is significant because PSLF offers total student loan forgiveness after 10 years of qualified public service. If you are an Educator, you also lose loan forgiveness of up to $17,500.

Refinancing Can Cost More When You Add It All Up. Your new loan agreement may not add up financially and save you much money. Worse, some refinancing scenarios could lead to higher fees, new penalties, higher payments, and take some much-needed leverage out of the equation. Student loans from the DOE offer low fixed interest rates. You can effectively reduce your repayment term on a federal student loan by just making extra payments on the loan(s) with the highest interest rate.

Poor Credit Leads to Non-Approval. If you have bad credit, getting approval for refinancing from a private lender can be a problem. The credit bar is set pretty high for student loan refinancing – at least a 700 credit score is often required to be considered and a 780 credit score (or more) to be given the green light.