Is Refinancing Your Federal Student Loans with a Personal Loan a Good Idea?

You may be considering refinancing your federal student loans and trying to save yourself some money. While many people refinance their student loans in one way or another, it may not always be the best decision. Many people consider refinancing them into a personal loan. There are several things to think about if you are considering this move. Here are a few aspects to consider when dealing with refinancing a student loan into a personal loan.

Higher Interest

Most of the time, when you go from a student loan to a personal loan, you will pay more interest. Interest rates on personal loans are usually one of the highest interest rates out there. These loans are often unsecured and therefore have higher rates than mortgages or other lending instruments. On the other hand, student loans are typically one of the lowest interest rates in the industry. You can get a student loan for a very little interest rate and it is a fixed rate over a very long period of time.

Tax Advantages

Owning a student loan gives you a tax advantage that other types of loans do not have. At the end of the year, you will receive a statement from your student loan lender that tells you exactly how much money you have paid in interest over the last year. You can take that amount and deduct it straight from your interest.

With a personal loan, you cannot deduct any interest paid from your taxes. Your interest is not tax-deductible, so you will lose any tax advantages you have.


A personal loan is notoriously inflexible. You will have a fixed interest rate, a fixed payment, and a certain amount of time to pay off the loan. For example, you might have a monthly payment every year for ten years. With a student loan, the process works a little differently.

With a student loan, you also have a fixed interest rate and a certain payment in most cases. However, they offer a few options to help you out in case you need it. They also offer a graduated repayment schedule. This lets you pay a lower payment at the beginning of the loan and gradually increase the payment as you go. This will be beneficial to most people because they have low incomes at first. Then as they advance in their careers, their income goes up. Therefore, they can now afford a larger payment. In this manner, you will repay the loan until it is paid off.

Another handy option to have is a forbearance. A forbearance can be used with your student loans in case you have a financial hardship. There are many circumstances that qualify for this forbearance. You will be able to basically put a hold on the loan until a later date. This will stop the payments from coming and the interest will still accumulate. While it will cost you a little more, it is nice to be able to stop the payments for a while if you need to.

With all of these factors considered, it is usually not in your best interest to refinance a student loan with a personal one.

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