In June 2020, the Department of Education announced new loan servicing contracts with five companies. Edfinancial Services was one of only two previous loan servicers that were given a new contract.
The Financial Aid office later announced that servicers won’t change in 2020; however, changes are coming starting in 2021. Borrowers whose federal student loans are currently serviced by a company that wasn’t awarded a new contract will eventually be moved to a new servicer.
If you receive notice that your loans will be transferred to Edfinancial Services, you might consider refinancing instead. After all, if you’re forced to endure the hassle of switching servicers anyway, you might as well try to lower your interest rate in the process.
An Edfinancial student loan refinance could make sense for some borrowers, but it might not for others, even if with a lower interest rate or better customer service. Here’s how to decide if an Edfinancial refinance is right for you.
What is Edfinancial Services?
Based in Knoxville, Tennessee, Edfinancial Services has been involved in the student loan industry for over 30 years. It services both federal and private student loans and has been a servicer for the Direct Loan program since 2012.
In addition to student loan servicing, the company’s Edamerica division assists colleges and universities in supporting students. Edamerica experts in its College Contact Center try to improve retention and reduce default rates by communicating with students, answering questions and providing support during the financial aid process.
How Edfinancial student loan refinancing works
It’s important to understand that it’s not possible to pursue refinancing with Edfinancial directly. Edfinancial manages your student loan payments, but the company isn’t the owner of your loans. The student loans it services are owned by the Department of Education or are privately held loans.
To refinance Edfinancial-serviced student loans, you’ll need to apply for a new student loan with a private lender. If approved, your new lender will pay off your Edfinancial student loans and will make a new loan under your name for the same amount.
Although the Department of Education doesn’t offer student loan refinancing, it does offer student loan consolidation. You won’t be able to lower your interest rate, but you’d be able to simplify your payments.
Pros and cons of an Edfinancial student loan refinance
Student loan refinancing comes with several potential benefits and drawbacks that you’ll want to carefully think through before you make a decision. Here’s what you need to know.
The most obvious advantage of refinancing student loans is that you may be able to reduce your interest rate. Depending on your loan amounts and current rates, refinancing at today’s best rates could save you tens of thousands of dollars over the life of your loans.
For example, let’s say that you just graduated medical school with $200,000 in student debt at an average interest rate of 6.50%. By refinancing at 3.50%, you could save just over $35,000 in interest charges.
You can also change your repayment terms during refinancing. Switching to a longer term could make your monthly payment more manageable. On the other hand, choosing a shorter term could help you secure a better interest rate and pay off your debt sooner.
Edfinancial services both federal and private student loans, and although the advantages of refinancing are the same for everyone, the type of loan you have makes a big difference when it comes to weighing the downsides of refinancing.
Below, is a breakdown of the cons of an Edfinancial student loan refinance for both federal and private student loan borrowers.
What federal student loan borrowers should know before refinancing
If you have federal student loans, you automatically qualify for a variety of student loan benefits. These federal benefits include protections such as income-driven repayment plans, federal student loan forgiveness programs (like Public Service Loan Forgiveness), or federal forbearance or deferment.
But all of these benefits go away when a federal borrower refinances loans with a private lender. Also, you’d lose access to federal student loan relief provided under the CARES Act to help students who’ve been negatively impacted by the COVID-19 pandemic.
Even if you get poor customer service from Edfinancial or another federal servicer, that’s not a good enough reason to refinance and give up federal benefits. Consider refinancing only if you can reduce your interest rate and don’t plan to pursue a federal forgiveness program.
And since you’ll no longer qualify for income-based repayment, you’ll also want to make sure that you have an emergency fund in place. That will help you avoid missing a payment or defaulting if you were to lose your job or suffer a reduction in income.
What private student loan borrowers should consider before refinancing
If you’re a private student loan borrower, none of the above disadvantages of refinancing apply to you. For private loans, refinancing is a no-brainer as long as you have good credit and qualify for a lower rate.
Extending your payment terms out another 10 years or more could be considered a downside of refinancing because you’d be pushing back your debt-free date. You can avoid this disadvantage, however, by refinancing to a term that’s similar to the amount of remaining years that are left on your current loan.
Another potential disadvantage of an Edfinancial student loan refinance is having to pay lender fees when you take out the new loan. But the good news is that there are many lenders that don’t charge any application or origination fees.
How to get approved for an Edfinancial refinance loan
Before applying for refinancing, you’ll want to check your credit. If you have a credit score of 750 or above, there’s a good chance that you could qualify for some of the best rates available today. But anyone with a score above 650 might still be able to get a better rate than they have now.
Dispute any errors on your credit reports, and pay down smaller debt before applying for an Edfinancial student loan refinance. Bringing these credit lines down to zero balances will reduce your debt-to-income ratio to better your chances at getting approved.
Once you’re happy with your credit situation, you can begin getting interest rate quotes. With many refinancing lenders, you can check your rates without it impacting your credit. If you decide to move forward with a full loan application, here’s some of the information you may need to supply:
- Social Security number
- Government-issued ID
- Existing loans and amounts
- Employment information
After submitting your application, you might receive a loan decision very quickly. The lender might also ask for more documentation. Once approved, your new lender will pay off your Edfinancial student loans and provide instructions on how and when to make payments on your new loan.
Where to apply for Edfinancial student loan refinancing
When you’re shopping for any financial product, like a student loan refinance, it’s important to get multiple quotes from various lenders. The more quotes you receive, the higher the chance that you’ll find the best deal.
In addition to interest rates, here are a few more factors to consider:
- Fees and penalties. Does the lender charge any application or origination fees and are there any prepayment penalties?
- Repayment terms. How many payment terms are available? With more options, you can be more precise in finding the right monthly payment for your budget.
- Customer service. Will the lender service the loan or outsource servicing to a third party? What do reviews from existing customers say about the lender’s in-house customer service team?
- Forbearance and deferment. Does the lender have a formal hardship forbearance policy? If so, what is the maximum forbearance period? Does it offer other forms of payment relief like academic deferment or active-duty military deferment?
- Eligibility requirements. Does the lender publish a credit score minimum? Are non-graduate borrowers eligible to apply?
Student Loan Planner can help you save time on lender research. Only refinancing companies with the best terms and benefits and strong ratings from our readers make it onto our list of the best student loan refinancing companies.