Gabriel T. Rubin and Rosie Ettenheim:
Borrowers facing down the return of federal student-loan payments might be tempted to refinance their loans in an attempt to save money. For many, that is a terrible idea.
With the Federal Reserve pushing interest rates to a multidecade high and new government programs offering the promise of low payments and possible debt forgiveness, personal-finance experts say refinancing would benefit only a handful of borrowers.
“It doesn’t make any sense to refi that because your costs are going to go up, not down,” said Jack Wallace, director of governmental and lender relations at Yrefy, a private student-loan company, speaking about those with undergraduate loans, the majority of student borrowers.
Starting in October, tens of millions of student-loan borrowers will need to make payments for the first time since the Education Department instituted a pause in March 2020.
Because federal student-loan payments and interest accrual were paused, few borrowers took advantage of the low rates earlier in the pandemic to refinance their loans, as many mortgage holders did. Sofi, a refinancing lender, said its volumes fell 90% when interest rates were set at zero. Now that the pause is ending, the window to refinance at low rates has closed.