When borrowing student loans, you’ll end up working with a loan servicer to manage your student loan payments while your loans are in repayment. If you have student loans under the Federal Family Education Loan (FFEL) Program, American Education Services (AES) acts as your loan servicer.
At some point, you may have dealt with AES and wondered if you could work with a different company and score a better interest rate. If you refinance AES student loans, you can do just that. But before diving in, here’s what you should know first.
What is American Education Services?
American Education Services is the loan servicer for FFEL Loans. AES was started by the Pennsylvania Higher Education Assistance Agency (PHEAA) to service FFEL Loans, as well as some alternate private student loans. So if you have an AES loan, it’s likely from the FFEL Program.
Under the PHEAA umbrella, AES and FedLoan Servicing act as loan servicers. As a loan servicer, AES manages payments, makes changes to repayment plans and serves you, the borrower.
What to consider before refinancing AES student loans
Borrowers that have AES student loan payments may be interested in getting a better interest rate to save money. Federal student loans have fixed interest rates, which can be good or bad depending on how you look at it. But if you want to change your rate, student loan refinancing is the way to go.
Through the process of student loan refinancing, you apply for a separate refinancing loan with a student loan refinancing company. There are several of these companies, as well as financial institutions that offer refinancing options. In the best-case scenario, refinancing can mean saving thousands of dollars, plus getting a better lender and more favorable repayment terms.
But refinancing AES loans should be considered carefully. Seeing as AES services FFEL Loans, that means you’d be refinancing federal student loans.
Federal student loans come with various benefits for borrowers. You may be able to take advantage of deferment or forbearance if you’re hit with hard times and need to put a temporary stop to your loan payments. You might also be eligible for student loan forgiveness, though it would require some work.
Federal student loan forgiveness
FFEL Loans aren’t eligible for the Public Service Loan Forgiveness (PSLF) program, where borrowers can get 100% of their loans forgiven after working for 10 years in the public sector and making 120 monthly student loan payments. The loophole here is that you can consolidate your FFEL Loans with a Direct Consolidation Loan. Under the new Direct Consolidation Loan, you’ll be eligible for PSLF.
On top of that, you can get student loan forgiveness through an income-driven repayment (IDR) plan. IDR has four repayment options that minimize your monthly payments to a small percentage of your income:
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
However, it should be noted that FFEL Loans are only eligible for IBR. But if you consolidate with a Direct Consolidation Loan, you can qualify for the other three IDR plans. You can then pay 10% to 20% of your discretionary income for the full repayment term of 20 to 25 years (depending on the plan).
If you have a student loan balance after the repayment term, that amount will be forgiven. This perk can be a lifesaver for borrowers who have six figures in student loan debt and want a way out. But you should note that under IDR forgiveness, you’ll pay taxes on the amount forgiven, whereas with PSLF, you won’t.
When you refinance, you’re applying with a private financial institution that doesn’t offer the same perks. You’re essentially taking out a new loan with (ideally) a lower interest rate. That new loan pays off all of your old loans. Your federal loans no longer exist due to the private student loan, so you’re no longer eligible for federal student loan protections either.
Before deciding to refinance AES student loans, consider the impact of losing income-driven repayment options and forgiveness (after consolidating). If your career track or debt amount don’t necessitate those things, refinancing could be a good option.
Pros of refinancing AES student loans
If you want to refinance your AES student loan payments, weigh the pros and cons before making your decision.
The main benefit of refinancing is scoring a lower interest rate. However, this is contingent on you having good credit and being approved for a refinancing loan. The credit bureau Experian considers a strong credit score to be 700 or above. The amount you save in interest can then be applied to your principal balance, helping you pay off your debt faster.
If you have multiple AES student loans, refinancing will also help you consolidate, so you’ll have only one monthly payment instead of several. You may also have more flexibility when it comes to interest rates and repayment terms. Many refinancing companies offer both variable and fixed interest rates, as well as various repayment terms.
Cons of refinancing AES student loans
If you want to refinance AES student loans, you can potentially save money on interest. But the drawbacks to consider are important.
The major disadvantage of student loan refinancing is losing federal protections from the U.S. Department of Education. As noted above, that means income-driven repayment options and any student loan forgiveness programs.
Eligibility requirements may also be a hurdle for some borrowers. Refinancing companies typically want to lend to borrowers with good credit, a low debt-to-income ratio and a positive repayment history. Because of this, refinancing student loans is more difficult than getting federal student loans.
Top lenders to refinance AES student loans
There are different companies you can consider if you want to refinance your AES student loans. Each company will offer different rates and repayment terms and have varying eligibility requirements.
CommonBond offers refinancing and also as a “social promise” to give back to underserved communities with each refinancing loan. It also has no origination fees and offers both forbearance and no prepayment penalties.
Earnest is another student loan refinancing option that has more flexibility and customizable options. You can also skip one payment a year and make bi-weekly autopayments.
LendKey is a unique alternative, as it works with community banks and credit unions to get you the best offers around. You can find a loan with a repayment term ranging from five to 20 years with no origination fees.
Refinancing your AES student loans can be a good move if you have good credit, job security and don’t plan on pursuing student loan forgiveness. Need any help deciding? Get in touch with us for a student loan consultation.