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Yes, student loans can be refinanced if you’re looking to combine multiple loans into one, lower your interest rate, or lower your monthly payment. You can refinance both federal and private student loans, but refinancing federal loans with a private lender will remove access to federal protections and benefits.

Here’s a detailed look at student loan refinancing so you can decide if it’s the right decision for you.

How to Refinance Student Loans

When you refinance your student loans, you’re essentially taking out a new loan and using it to pay off your existing student loans. Refinancing may allow you to secure a lower interest rate or reduce your monthly payments.

Student loan refinancing may also allow you to change your repayment term. If you took out a private student loan to pay for your education, the repayment terms were set when you borrowed the loan.

If you borrowed federal loans, there are student loan repayment plans you can choose from, including the Standard 10-year Repayment plan or one of four income-driven repayment plans. If you refinance, you can choose a shorter or longer repayment term, but you will lose access to the federal repayment options.

A shorter repayment term will mean that your monthly payments will increase, but that you’ll most likely pay less in interest over the life of your loan. In contrast, a longer repayment term will mean that your monthly payments will decrease, but you might pay more in interest overall.

Can I Refinance Student Loans?

Yes, you can technically refinance your student loans at any time. However, while in school, federal loans (and most private loans) do not require you to make payments. Unless you’re able to start making payments and can lock in a lower rate with a refinance, it may make sense to wait until you graduate, leave school, or drop below half-time enrollment.

Recommended: How Soon Can You Refinance Student Loans?

When you refinance student loans with a private lender, the lender is going to look at your credit profile and debt-to-income ratio to qualify you and determine your interest rate. It may make sense to build your credit and have a stable job prior to applying for a refinance. You can also choose to refinance your loans with a cosigner to secure a better interest rate.

Is It Worth It to Refinance Your Loans?

You might be wondering if it’s worth it to refinance your student loans. The answer to that will depend on your personal financial situation, but using a student loan refinance calculator can help you see if and how much you could save by refinancing.

Depending on how much you have in student debt, reducing your rate by just a few percentage points could save you thousands of dollars over the life of your loan if you keep your loan term the same. If you’re hoping to lower your monthly payment, you most likely will have to extend your loan term, which could result in paying more in interest overall.

Also note that refinancing federal student loans with a private lender removes federal student loan benefits and protections, such as income-driven repayment plans, deferment, and student loan forbearance.

What Types of Student Loans Can Be Refinanced?

Both federal and private student loans can be refinanced with a private lender. All types of loans can be refinanced, including Direct Loans, Direct PLUS Loans, Direct Consolidation Loans, and private student loans.

If you want to combine federal loans only into one loan with one monthly, you could consider a student loan consolidation. A student loan consolidation won’t save you money in interest, as it’s the weighted average of the loans you’re consolidating rounded up to the nearest one-eighth of a percent, but it could lower your payment if you extend your loan term.

Consolidating your federal loans allows you to keep access to federal benefits and protections. If you’re using them now or plan to in the future, this could be an excellent option to simplify your loan repayment.

If you don’t plan on using federal benefits and want to reduce your monthly payment or lower your interest rate, a student loan refinance could be the right choice for you.

Recommended: Pros and Cons of Student Loan Refinancing

What to Look for in a Student Loan Refinance Company

When it comes to refinancing student loans, consider finding a lender that doesn’t charge origination fees or prepayment penalties. Usually, you’ll have the choice between a fixed or variable rate loan.

Other things to look for in a student loan refinance company include excellent customer service ratings, an easy online application process, and possible member benefits, such as career coaching, financial advice, and rate discounts on loans.

Refinancing Student Loans With SoFi

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Is it legal to refinance student loans?

Yes, it is legal to refinance student loans. You can refinance both federal and private student loans with a private lender. You may be interested in refinancing if you’re wanting to lower your monthly payment or lower your interest rate. Keep in mind that refinancing federal loans will eliminate federal protections and benefits.

What happens when you refinance a student loan?

When you refinance your student loans, you pay off one or more of your existing student loans and have a new loan with a new interest rate, new terms, and a new monthly payment. You will then make your monthly payment to your new lender until it is paid off or you refinance it again with another company.

Why would you refinance student loans?

You may choose to refinance your student loans to lower your monthly payment, lower your interest rate, extend or shorten your loan term, and/or simplify your repayments.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Funding your retirement is crucial—and donating money to worthy causes is a pretty great financial goal, too. When used correctly, a charitable gift annuity can help you accomplish both of those objectives at the same time.

What Is a Charitable Gift Annuity?

A charitable gift annuity allows a donor to make a contribution to a charity in exchange for a fixed monthly income for both the donor and an optional additional beneficiary later in life. This stream of payments can be a steady source of income in retirement, and is guaranteed through the annuity until all listed beneficiaries die.

However, there are important tax considerations to think through before purchasing a charitable gift annuity—or any annuity, for that matter. In this article, we’ll dive into the details on how charitable annuities work, what makes them different from other kinds of annuities, and how to determine whether or not one is right for you.

Understanding the Concept of Annuities

To fully understand charitable gift annuities, it’s important to have a background on annuities in general.

An annuity is a type of financial product used to create an income stream during retirement. It’s a contract—generally between the beneficiary and an insurance company or bank—that guarantees the buyer a set monthly payment in exchange for money the buyer pays in ahead of time.

Recommended: What is an Annuity, Exactly?

Depending on the type of annuity, the beneficiary might pay for it over time or in a lump sum. Sometimes, payments into the annuity can be made directly from an existing retirement account like an IRA or 401(k). Then, the annuity provider invests the money and makes payments back to the buyer once the retirement period starts. Payments might last for a set amount of time, like 10 years, or for the rest of the beneficiary’s life.

For the provider, an annuity is basically a wager against the buyer’s life expectancy. If the buyer passes away before the retirement savings they’ve paid into the annuity—along with any interest it’s earned in the meantime—has been paid back to them entirely, the annuity provider gets to keep the change.

With a charitable gift annuity, however, it works a little bit differently.

How Does a Charitable Gift Annuity Work?

With a charitable gift annuity, the contract is drawn up not between the buyer and an insurance company or bank (as with a standard annuity), but between a donor and a qualified charity. The donor makes a gift to the charity, some of which is used immediately for whatever needs the organization supports. However, part of the money is set aside in a reserve account, where it’s invested and will grow. Money from the reserve account—both principal and interest—are used to pay out the monthly stipend the beneficiary or beneficiaries receive.

Charitable annuity payments are made to the donor and beneficiary until both have passed away—at which point, the extra money is kept by the charity and used for charitable purposes.

In this way, the buyer of a charitable gift annuity can make a gift to a cause they support even after they’re gone, all while helping themselves create a secure and reliable retirement income in the meantime.

What are the Benefits of Charitable Gift Annuities?

Along with helping donors support a charity of their choosing both in and after life, charitable annuities have some other features that can make them attractive retirement vehicles for some people.

Non-Cash Donations

Many charitable gift annuities allow donors to contribute non-cash donations, including fixed income securities and investments—but also tangible items like art and real estate. Having this option means that donors might save money on taxes down the line. Annuity income is generally taxed as normal income at both the federal and state levels, but by donating physical securities, buyers of charitable gift annuities might pay less in capital gains taxes. (That said, regular income tax will still apply on any and all income received through the annuity.)

Payment Flexibility

Another nice thing about charitable gift annuities is the flexibility buyers have in receiving the payments when there are more than one beneficiary. Payments can either be structured to go to both beneficiaries at once, or to only kick in for the second beneficiary after the death of the first. In any case, any leftover funds will be donated to the charity when all beneficiaries have passed away.

Alternatives to Charitable Gift Annuities

Although charitable gift annuities can be a valuable tool, they may not be the right choice for every investor for a variety of reasons, including:

•   Gift annuities tend to have lower rates than most commercial annuity types, so they might not maximize your retirement income.
•   If you don’t have physical assets to donate, there may be more efficient ways to invest your cash.
•   Income streams from any type of annuity are usually still subject to federal and state income tax, unless they’ve been purchased using a Roth IRA or Roth 401(k), whose funds have already been taxed.

For investors who’d like more control over their investments, and fewer restrictions around when and how they can access the money, there are other places to put your retirement money.

One likely option is to take advantage of an employer-sponsored retirement account like a 401(k) at work. And almost anyone can bolster their retirement savings by investing in an IRA. Those under set income limits can invest in a Roth IRA, which will allow them to take tax-free distributions once they reach retirement age.

Even if you choose an alternative retirement option, you can continue to make donating to charities part of your financial lifestyle. It may even be possible to set aside money for charitable giving while on a tight budget.

The Takeaway

A charitable gift annuity is an annuity in which a donor contributes money to a charity, with the promise of getting regular payments in return later in life—for themselves and an optional beneficiary. Part of the initial payment, as well as any leftover funds, are donated to the participating charity after all the beneficiaries have died, making it a good way to secure retirement income while being charitable at the same time.

While a charitable annuity may be attractive to some investors, other types of retirement savings may allow an individual more nuanced control of their investments and more flexibility in the size and frequency of their withdrawals upon retirement.

There are many ways to invest for retirement, including opening a traditional, Roth, or SEP IRA with a SoFi Invest® online investing account. Members can choose between an active or automated account, and get access to a broad range of investment options, member services, and a robust suite of planning and investment tools.

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