Refinance AES Student Loans: What You Should Know First

When borrowing student loans, you’ll end up working with a student loan servicer. This servicer helps student loan borrowers manage student loan repayment. If you have student loans under the Federal Family Education Loan Program (FFEL), American Education Services (AES) acts as your loan servicer.

At some point, you may have dealt with American Education Services and wondered if you could work with a different lender to score a better interest rate. Yes, you can refinance AES student loans with a private loan company. But before diving in, here’s what you should know first.

What is American Education Services (AES)?

The Pennsylvania Higher Education Assistance Agency (PHEAA) was created by the Pennsylvania General Assembly in 1963 to service federal student loans. Under the Pennsylvania Higher Education Assistance Agency (PHEAA) umbrella, there are two servicing brands — American Education Services (AES) and FedLoan Servicing.

AES was started by the Pennsylvania Higher Education Assistance Agency (PHEAA) to service the Federal Family Education Loan Program (FFEL) while FedLoan Servicing is a Direct Loan servicer for the Department of Education. So if you have an American Education Services loan, it’s likely from the FFEL Program.

American Education Services manages payments, makes changes to repayment plans and serves you, the borrower. The Pennsylvania Higher Education Assistance Agency (PHEAA) says that AES also services some private student loans for lending partners throughout the country.

Related: FFEL Loan Forgiveness And Repayment: What You Should Know

What to consider before refinancing AES student loans

Borrowers who have American Education Services student loan payments may be interested in getting a better interest rate to save money. Federal 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 student loan refinance process, 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. Since American Education Services exclusively manages the Federal Family Education Loan Program (FFELP), you’d be refinancing federal student loans with a private lender.

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, which American Education Services manages, aren’t eligible for the Public Service Loan Forgiveness (PSLF) program; However, you can consolidate your FFEL loans with a Direct Consolidation loan. And after finishing your federal loan consolidation, you’d be eligible for PSLF.

On top of that, you can get student loan forgiveness through one of the income-driven repayment plans (IDR). IDR has four repayment options that minimize your monthly payments to a small percentage of your income:

1. Income-Based Repayment (IBR)
2. Income-Contingent Repayment (ICR)
3. Pay As You Earn (PAYE)
4. 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 loan 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 student loan no longer exists, so you’re no longer eligible for federal student loan protections.

Before deciding to refinance American Education Services student loans, consider the impact of losing Income-Driven Repayment (IDR) payment plans and forgiveness (after consolidating). If your career track or debt amount doesn't necessitate those things, refinancing could be a good option.

Pros of refinancing AES student loans

If you want to refinance your AES federal student loan, weigh the pros and cons before making your decision.

The main benefit of refinancing is scoring a lower interest rate, if you're a qualifying borrower with good credit. 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. Essentially it save you in total amount paid over the life of the loan.

If you have multiple student loans from American Education Services, refinancing with a lender will also help with loan consolidation, 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 it's important to consider the drawbacks of refinancing to private student loans.

The major disadvantage of student loan refinancing is that you'll lose federal protections from the U.S. Department of Education. As noted above, that means income-based payment options and any student loan forgiveness programs.

For these reasons, it's probably not a good idea to leave American Education Services for customer service reasons alone. You should really only consider refinancing and giving up your valuable federal benefits if you'd be able to get a better interest rate or repayment terms during the process.

Eligibility requirements for private student loans may also be a hurdle for some borrowers. Private student loan consolidation 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. Here are a few lenders to consider if you're ready to give American Education Services the boot.

1. Earnest

Earnest is another student loan refinancing option that offers a lot of flexibility and customizable loan consolidation options. It offers 180 different repayment terms from five to 20 years to help you find the perfect payment for your budget. You can also skip one payment a year and make bi-weekly payments. Learn more about Earnest in our complete review.

Earnest

4.5 out of 5

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Earnest: Best for flexible repayment

• Positives: Flexible repayment terms, custom loan payments
• Allows cosigners: Yes
• Deferment or forbearance available: Yes, up to 36 months
• Interest rates: Fixed starting at 5.19% APR; Variable starting at 5.99% APR
• Bonus: $200 for refinancing 50k to $99,999; $1000 for refinancing 100k or more.

Visit Earnest Up to $1,000 Bonus More Information

2. LendKey

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. After filling out one simple application, you could receive loan consolidation quotes from multiple lenders within minutes. Check out our full review of LendKey.

LendKey

4.0 out of 5

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LendKey: Best for community banks and credit unions

• Positives: Compares many smaller lenders you might not apply to
• Allows cosigners: Yes
• Deferment or forbearance available: Yes
• Interest rates: Fixed starting at 7.11% APR; Variable starting at 5.54% APR
• Bonus: $100 for refinancing up to $20k, or $200 for $20k to $100k, or $400 for over $100k, or $1,250 for $150k or more

Visit LendKey Up to $1,250 Bonus More Information

Refinancing a federal student loan that you have with American Education Services can be a good move if you have good credit, job security and don’t plan on pursuing student loan forgiveness. Be sure to review loan terms, variable rates vs. fixed rates, and how your repayment period will affect monthly payments. Need help deciding if refinancing or loan consolidation is right for you? Get in touch with us for a student loan consultation.

Clint Proctor contributed to this article.