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 50 million customers, it continues to grow and provide new services each year. But a new offering for TurboTax users comes with the requirement that customers give permission to share their personal tax data. In return, TurboTax promises 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. Founded in 2013, Earnest claims it 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 millions of TurboTax customers have student loans.
- TurboTax allows student loan borrowers to share their data with Earnest, which will help find refinancing options.
- By refinancing federal student loans through private lenders, borrowers may give up certain benefits like loan forgiveness and deferment options.
- Sharing data also comes with the potential of having personal information compromised.
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 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, you should do some due diligence first.
More than 44 million people carry student loan debt in the United States worth roughly $1.56 trillion.
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 repayment flexibility. Unlike private loans, they offer a wide variety of repayment plans and the ability to switch between them whenever you want.
There are other reasons not to make the switch if you have federal loans. Should you decide to attend graduate school, your federal loans will be deferred, so you won’t have to make payments while you attend 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.
To qualify for the Public Service Loan Forgiveness program, you must be a full-time employee with a government organization or non-profit.
TurboTax representatives claim that customers who receive private refinancing offers from Earnest are clearly informed they will give up federal benefits including public-service-loan forgiveness. As the tax prep company continues to improve 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 an online provider is always a gamble, particularly with cybercrime at an all-time high. Although TurboTax insists its top priority is to protect customer information and only work with trustworthy partners, there are inevitable risks to sharing your personal information.
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, may 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.
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.