Should you let TurboTax share your data? The popular tax software from Intuit Inc. is often hailed as the leader of do-it-yourself tax preparation programs, and, with nearly 28 million customers, it continues to grow and provide new services each year. Now, however, a new offering for TurboTax users comes with the requirement that customers give permission to share their personal tax data. In return TurboTax is promising something major: great deals on student loan refinancing.

It all started when TurboTax joined forces with Earnest, a zero-fee student loan refinancer, in January 2015. Earnest, founded in 2013, claims that it has refinanced more than $1 billion in student debt, saving borrowers more than $300 million over the life of their student loans. The partnership makes perfect sense, considering that an estimated five million TurboTax customers have student loans.

Why Should You Let TurboTax Share Your Data?

Because it’s a no-brainer to do anything in your power to reduce your student debt, right? Maybe so, but first let’s take a look at how the program works.

When you finish filing your taxes, TurboTax will ask for your permission to share your information to receive student loan refinance estimates. If you opt in, your data will be sent to Earnest for review. After analyzing your information and conducting a soft inquiry (a credit check that does not affect your credit score), Earnest determines if you qualify for refinancing.

If you do, the company sends you a personalized interest-rate quote to show you how much you could save if you refinance your student loans with Earnest. If you choose to accept the estimate, you will have to complete a full application and a hard credit inquiry. If the loan goes through, TurboTax receives a payment.

But even if it's a good offer, do some due diligence first.

Hazards Ahead

Step one: Examine the potential risks of refinancing your particular student loans. To begin with, if you have federal loans (more than 90% of student and parent loans are federal), refinancing with a private lender may not be the smartest choice. Why? Because federal loans offer greater flexibility when it comes to repayment. Unlike private loans, they offer a wide variety of repayment plans and the ability to switch between them whenever you want. (For more, see Student Loans: Federal Loans and Student Loans: Private Loans.)

There are other reasons not to make the switch if the loans you have are federal. Should you decide to attend graduate school, your federal loans will enter deferment – meaning that you won’t have to make payments on your undergrad loans while you’re attending grad school (and likely not earning an income). Plus, if you choose to work as a public servant, the government offers loan-forgiveness options that are not available for private loans. For example, the Public Service Loan Forgiveness program forgives the remaining balance on your direct loans once you have made 120 monthly payments while working full time for a qualifying government employer. There are similar student loan forgiveness programs for teachers and nonprofit workers. (For more, see Student Loan Forgiveness: How Does It Work?)

TurboTax representatives claim that customers who receive private refinancing offers from Earnest are clearly informed that they will be giving up federal benefits, including public-service-loan forgiveness. As the tax prep company continues to improve upon the program, it has plans to suggest both federal and private refinance options, depending on each consumer’s unique situation. 

Last but not least, sharing your sensitive financial data with any online provider is always a gamble, particularly with cybercrime at an all-time high. Although TurboTax insists that its top priority is to protect customer information and only work with trustworthy partners, there are inevitable risks to sharing your personal information. (For more, see Tips for Keeping Your Financial Data Safe Online.)

The Bottom Line

The new partnership between TurboTax and Earnest could lead to big savings for some customers struggling to pay off student debt. Students with private loans, rather than federal ones, might be particularly interested. 

However, before you give TurboTax permission to share your tax data, it’s important to weigh your options carefully. Not only is it risky to share your financial data with an online provider; refinancing your student loan may also not be the best option for you, particularly if you have federal loans. While Earnest may offer you a lower interest rate, you could lose even more-valuable benefits that go hand in hand with federal loans.  (For more, see Student Loan Refinancing: The Pros and Cons.)

If you have private loans and you are thinking of loan consolidation or refinancing, you can compare the Earnest offer with those from other lenders. Either way, proceed with caution.

 

 

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