Guide and Tips to Refinancing Student Loans
There are some cases when refinancing federal student loans as well as private student loans became the best choice. For instance, you can opt to refinance your student loans if they are more than 8 to 10 percent of your income or if you are nearly default.
Refinancing Student Loans - Pros and Cons
Refinancing student loans has several advantages especially if the required payments are beyond what you can afford as of the moment or if you have two or more student loans.
By refinancing student loans, you will be able to consolidate or combine all your loans. The main advantage is easier monthly payment. It is also helpful if your student loans have different interest rates.
By refinancing student loans, you get them combined and have one interest rate that is lower than usual.
In contrary to what other people think, saving a lot of money by refinancing student loans is rare because of the fact that you are entering a new loan (see Paying Off Student Loans).
With low interest rates, the period of repayment may also be longer. However, most financing companies give discounts to people who pay on time or earlier. This is when you can actually save when refinancing student loans.
The average college student will face $22,000 in student loans when he or she graduates. It’ll take at least 10 years to pay it off. But what if some or even all of your debt could be forgiven, erased, wiped clean?
Recent college graduates saddled with student loan debt and facing a weak job market can turn to a student loan refinance for some financial reprieve.
A student loan refinance lowers monthly loan payments by either locking in a lower fixed interest rate or extending the term of the loan.
The latter lowers the monthly payment but costs more overall. Many lenders will not refinance an existing student loan because it isn’t profitable for them.
However, if you’re interested in trying to land a student loan refinance, Create a news alert for “college finance”. Think twice about refinancing if you have a federal Perkins loan. These low-interest loans help needy students finance postsecondary education.
A refinance of this loan would eliminate some of its benefits. Ask your current lender for a consolidation. This is far from a guaranteed deal, but it may be a way for your lender to retain your business. Check with your community bank.
Refinancing Student Loans - Pre-Refinancing
If you think refinancing student loans is the best solution for your case, there are some things that you may want to do before applying. First is to get a copy of your credit report.
Browse for a student loan or two that you can settle at the moment to improve your credit score and lower the principal amount of your refinancing loan. Additionally, a good credit score can help lower the interest rate as well as increase the likelihood of and even speed up the loan approval.
Once you are ready, survey the banks and credit unions in your area. You can also find them online. Ask for their rates and terms. The next step is comparing them.
Of course, you want to go to one that offers the lowest interest rate and the most flexible payment terms. Remember to look at the terms and not only at the interest rate.
You may be surprised that a certain refinancing loan charges low interest rate but requires a big monthly payment within only a few years.
Refinancing Student Loans - Things to Remember
Refinancing private student loans and federal student loans should be done separately. While it is possible to refinance both federal and private student loans in one, it is not recommended because you will lose the benefits of your federal student loan (i.e. longer payment terms and lower interest rate).
The best time for refinancing student loans is after your graduation during the grace period, which is usually six months. You get the best chances to low interest rates and can even lower the fixed interest rate by 0.6%.
You can still use deferment or forbearance in case you will not be able to pay after refinancing student loans. It is best to use deferment or forbearance to avoid bad credit record. However, they do not stop the interests from accumulating. They only give you a break from monthly payment.
