Paying off your student loans can be expensive and downright scary if you’re on a budget since the average payment is $570 a month. One thing you can do to try to mitigate your financial situation is trying to refinance your student loans.
Understanding Student Loan Refinancing
Student loan refinance means that you take out a new loan to repay your existing one. The new loan will have a new term, a new lender, and a new (and hopefully lower) interest rate. The lower interest rate is what ensures that you pay less money for your student loan every month. Keep in mind, though, that a lower interest rate means a shorter repayment term, which could mean higher payments. This is why it is very important to do your research to ensure you don’t actually end up paying more. Additionally, if you refinance, you may not qualify for programs such as student loan forgiveness, paused payments, or discharged loans if you become disabled.
Determining Whether Refinancing Your Loans Is Right For You
There are advantages and disadvantages to refinancing your loans, and it’s a good idea to weigh all of them before making your decision. First, consider whether your loans are federal or private. Federal student loans provide a lot of benefits such as student loan forgiveness. However, private loans do not offer as many benefits and may be a better choice for refinancing.
Think about what your current interest rates are right now as well. Refinanced interest rates may or may not be lower than the rates you’re paying now. Additionally, if your new loan has a shorter loan term, you could find that you’d end up paying more than if you were to keep your current loan. Of course, the longer the loan payment terms, the more you’ll pay in interest, so weigh what is most important to you: paying off your loan quickly and having higher payments or paying it slowly to have lower payments.
When To Refinance Student Loans
There are a number of ways to determine whether it’s time to refinance your student loans. First, know that many places have qualification requirements before you can refinance your loans. This includes having a college degree, an income, and good credit. If you meet these qualifications, then there are other things to consider.
First, consider whether the savings will make a difference. You don’t necessarily need to have perfect credit, so long as you’ll get a better rate. You might also ask if the lender offers a student loan refinance bonus. Then, consider whether your student loans are from a private lender. They are easier to refinance since you won’t lose access to federal student loan programs. Other things to consider are whether you have student loans with high variable rates, whether the interest rate environment is strong, and if refinancing will truly improve your finances.
Researching Lenders and Getting Rate Estimates
Before you sign on the dotted line, it’s important to research the lenders you’re interested in and get multiple rate estimates. For example, some lenders allow parents to refinance PLUS loans in their child’s name. Other lenders allow you to refinance your loans even if you didn’t graduate from college. There are also special refinancing programs for medical school loans, MBA student loans, international student loans, and more.
Think about the rates as well. Get rate estimates from any lenders that you’re interested in. Usually, the best lender is the one that offers the lowest rate. As you’re searching for your lender, some may offer you the chance to pre-qualify. This is up to you. Pre-qualification does a soft credit check, which typically won’t have an effect on your credit score. However, an actual application does do a hard credit check, which may lower your score briefly. For this reason, it’s a good idea to only apply to one lender at a time, starting with the one you’re most interested in first.
Refinancing student loans may seem scary on the surface, but once you have the information you need and understand how it works, it goes smoothly. Consider your options and make the best choice to meet your needs.