- 5 Things to Do Before Refinancing Your Student Loans
- What is student loan refinancing?
- Things to consider before refinancing your student loans
- 1. Read up on the benefits offered by federal student loans
- 2. Choose which loans you want to refinance
- 3. Check your credit report and credit score
- 4. Improve your chances of approval
- 5. Compare rates and terms from different lenders
- 5 secrets to refinancing student loans that could save you thousands
- 1. Understand the type of student loan you have
- 2. You can refinance all or some of your student loans
- 3. Your credit score plays a role
- 4. Lenders offer different rates (so do your research)
- 5. How to figure out if refinancing will help you long term
- The Student Loan Secret that Could Save You Thousands of Dollars
- So, what is refinancing?
- Is student loan refinancing right for you?
- Who should I refinance with?
- 9 Best Lenders to Refinance Student Loans (0 –
- Should you refinance in March 2021?
- When to refinance federal and private student loans
- How to compare the best student loan refinancing companies
- 10 facts about refinancing
- Fact #1: You’ll save a ton of money
- Fact #2: Refinancing is usually quick and easy
- Fact #3: You don’t have to refinance all of your loans
- Fact #4: You get better service
- Fact #5: Consolidation and refinancing aren’t the same thing
- Fact #6: Refinancing doesn’t eliminate your debt
- Fact #7: You can refinance again later
- Fact #8: Don’t refinance if pursuing student loan forgiveness
- Fact #9: Don’t fear the student loan debt monster
- Fact #10: You get cash back and special service
- Refinancing law school loans
- 3 Strategies for Saving Money on Your Student Loans
- 1. Consolidate your student loans
- Choosing the Right Strategy to Save Money on Your Student Loan
5 Things to Do Before Refinancing Your Student Loans
Image source: Getty Images
More than 44 million Americans now owe roughly $1.5 trillion in student loans. The average college graduate from the class of 2016 went out into the real world saddled with $37,172 in student loan debt.
The interest rate on federal student loans recently increased to 5.05%-7.6%, and private student loans are usually even higher. It’s no secret that paying off student loans often takes decades, and many borrowers are finding that the majority of their monthly payments go toward interest fees.
As interest rates continue to increase, it’s time to consider refinancing your student loan debt.
What is student loan refinancing?
Student loan refinancing is the process of getting a new loan to replace some or all of your student loans. This is done to consolidate your loans into a single monthly payment and to, ideally, lower your interest rate. If you qualify for a good offer, refinancing can help you save thousands and finish paying off your loans earlier.
Things to consider before refinancing your student loans
Refinancing can be a life saver when you’re saddled with debt, but it can also make your situation worse. Before you refinance your student loans, here are some important steps to take.
1. Read up on the benefits offered by federal student loans
There's a reason that the great majority of student loan debt (roughly $1.4 trillion) is in the form of federal student loans. Generally speaking, student loans offered by the federal government are easier to qualify for and offer more extensive protections and repayment options. These include:
- Income-driven repayment plans that can lower your monthly payments to as little as 10% of your discretionary income.
- Loan forgiveness after 20 to 25 years of on-time payments under certain income-driven repayment plans.
- Public Service Loan Forgiveness for borrowers working in eligible public service jobs.
- Deferment and forbearance options, which allow you to temporarily stop making payments in the case of financial hardship.
If you refinance your federal student loans under a private lender, you will no longer have access to most of these options. While some lenders do offer deferment and flexible repayment plans, they’re not as generous as federal plans. There are currently no officially recognized forgiveness programs for private student loans.
2. Choose which loans you want to refinance
If your interest rate is already low, there isn’t much benefit to refinancing. However, you don’t have to refinance all of your student loans.
For example, if you have two loans with a 7% interest rate and one with a 3% interest rate, it might make sense to keep the loan with the 3% interest rate but refinance the other two. You could also refinance just your private loans and keep your federal loans.
Many lenders refinance student loans at variable rates as low as 2.5%. Keep in mind that this is on the low end of the interest rate range, so only the most creditworthy borrowers will qualify.
3. Check your credit report and credit score
In order to refinance your student loans, you’ll need to apply and be approved for refinancing with a lender. They’ll consider the following factors:
- Credit score
- Debt-to-income ratio
Before applying, it’s prudent to pull your credit report and make sure there are no bad marks. If you see anything on your report that you believe is incorrect, you should dispute it with each credit bureau.
Check your credit score as well. You should have a FICO score of at least 650 to qualify with most lenders, but a 700 or above will get you the best rates.
4. Improve your chances of approval
There are several steps you can take to improve your chances not only of being approved, but of receiving a good refinancing offer.
Pay off all of your credit card debt. If you can pay off your credit card debt in the near future, it will help you out when you apply for refinancing. This will also decrease your debt-to-credit ratio, so you may see an immediate bump in your credit score.
Increase your credit score. There are no quick fixes for poor credit, but if you’re on the edge of qualifying, paying off a balance or asking for a credit limit increase may help. Negative items will fall off your credit report in seven years, so if the seven-year mark is approaching, you can wait to apply for refinancing until it passes.
Have a steady job and good income. Employment history is an important factor in determining whether or not you qualify for refinancing. If you don’t have steady work, focus on that first. If you have a stable job but a low income, you may want to consider applying with a cosigner.
5. Compare rates and terms from different lenders
Once you’ve decided you’re ready to refinance your student loans, shop around for the best personal loan rates.
While getting the lowest interest rate possible is important, you’ll also want to consider other terms whether the interest is fixed or variable, what the repayment options are, if they offer options for people experiencing financial hardship, and what their customer service is .
Consider the repayment term as well. You want to get your loans paid off in a shorter time span to save money on interest. For example, if you’ve got eight years left on your repayment plan and you decide to refinance at a slightly lower interest rate with a 10-year repayment plan, you’ll ly end up paying more than you would with your current loans.
Ultimately, refinancing can be a powerful tool for cutting down on student loan debt quickly, but don’t automatically assume you’ll save money.
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5 secrets to refinancing student loans that could save you thousands
The average consumer loan debt has a balance of around $37,172, according to debt.org, and the average borrower pays between 4.53 percent and 7.08 percent in interest. If you have student loans, you may be considering refinancing to take advantage of the lower interest rates resulting from the coronavirus pandemic.
Refinancing can potentially save you thousands if you’re able to snag a lower interest rate than your current loan agreement. Find out what new rates you qualify for by inserting some information into Credible's free online tool.
THIS IS WHY STUDENT LOAN REFINANCING RATES ARE GOING DOWN
If you’re considering refinancing a student loan, here are a few tips to make sure you have the best experience:
1. Understand the type of student loan you have
It’s essential to understand the type of loan you have because you’ll have a clearer picture of what kind of refinance you qualify for or even if a refinance is a good idea.
For example, if you have a federal student loan, you may want to wait until after September to refinance your loan. The federal government has suspended all federal student loan payments and reduced the interest rates on the loans to 0 percent.
You’re not going to find a better deal than that in the private sector.
If you have private loans, FEEL loans or HEAL loans owned by commercial lenders, or some Perkins Loans, you won’t qualify for the deferment or 0 percent interest rates, so now may be the perfect time for you to refinance. Check and see if you're eligible for a better interest rate than what your current lender gives you. This is ideal for fully employed borrowers with no credit blemishes.
HOW TO CHOOSE THE BEST STUDENT LOAN REFINANCING OFFER
However, it's important to note that you cannot refinance into a federal loan. If you choose to refinance your current federal student loan, you’ll lose any benefits that apply to that type of financing.
2. You can refinance all or some of your student loans
If you have multiple student loans, you can refinance some, all, or none of them. For example, if you have some federal student loans and some private loans, you could refinance the private loans and leave the federal loans as they are. Further, if you have student loans with low rates (under 3.5 percent), refinancing may not benefit you.
If you have any form of private student loans, then you may want to compare lenders via Credible and see if you can strike a deal that will save you money.
WHAT HAPPENS IF YOU DEFAULT ON A STUDENT LOAN?
Alternatively, you could consolidate all, or some, of your student loans to simplify monthly payments. Consolidating your student loans may also reduce the amount you pay each month.
3. Your credit score plays a role
When you reconsolidate a loan, you replace your current loan with a new loan. Qualifying for a refinance is qualifying for a regular loan. Lenders will look at your credit score, income, and employment history before approving your refinance application. Before applying, make sure your credit score is solid.
You can improve your credit score by making payments on time, reducing the total balance on open accounts, and reducing your debt-to-income ratio. You may want to request a copy of your credit report to check for any errors or open accounts you may have neglected.
You can use an online tool Credible to prequalify for a refinance without hurting your credit score. Comparing multiple offers will allow you to identify whether you’ll have access to beneficial rates.
4. Lenders offer different rates (so do your research)
If you feel confident that a refinance is the right decision for you and you’re comfortable that your credit score and financial history will allow you to qualify, it’s time to research.
You should compare rates from several lenders at once. Make sure to check out the fees they charge. Since a refinance is akin to taking out a new loan, you’ll ly have some expenses a loan origination fee and closing costs. And don’t forget to ask if the lender charges an early repayment penalty.
5. How to figure out if refinancing will help you long term
Once you’ve narrowed your search down to a few lenders, run the numbers. Make sure that you'll save as much or more than the cost of your refinance. Ideally, you should only consider refinancing a student loan if you can snag a lower rate and/or consolidate multiple loans into one payment.
CORONAVIRUS SETS STUDENT LOAN INTEREST RATES TO HISTORIC LOWS — HOW TO SAVE MONEY BY REFINANCING
You should only refinance your student loan if you save money. That could mean a lower monthly payment or less money paid over the life of the loan. If you need an income-based repayment plan or your credit score is in the low 600s or below, refinancing isn’t a good option for you right now.
The Student Loan Secret that Could Save You Thousands of Dollars
Student loans are becoming the signature of our generation as droves of students are graduating with thousands of dollars in debt. At this point, the rising cost of tuition is making once affordable public schools hard to attend without taking on some form of assistance.
The numbers prove it, too. According to the Project on Student Debt, 69% of students who graduated in 2013, from public or non-profit schools, had an average of $28,400 in debt. That number is only increasing and is much larger for students who are attending private school, or going to school out-of-state.
As I can attest, when you graduate with student loan debt, you may be at the mercy of various lenders, various interest rates, and vastly different repayment terms.
So, what should you do if you have multiple lenders, multiple payments and various interest rates that cascade from high to low? Consider student loan refinancing.
Federal loans and private loans are very different in regards to fixed versus variable interest rates, as well as repayment plans. Typically private loans are less lenient and can have stricter terms.
Previously, borrowers had little-to-no options when it came to refinancing their loans. Now there are several companies that are working to help aid student loan borrowers manage their payments.
So, what is refinancing?
Loan refinancing is a way to make paying your student loans easier. As previously mentioned, many students may have a mix of loans from different lenders, such as having federal and private student loans. Instead of paying multiple lenders, through refinancing, borrowers pay one lender and make one payment.
In a way, you are paying loans with a loan, but it can help you manage your payments and potentially save thousands of dollars in interest through refinancing.
Through student loan refinancing, you are consolidating your loans, but also refinancing, with (hopefully) a better rate. This is different from the Direct Consolidation Loans that are offered by the federal government. Those loans are limited to federal student loans and typically don’t offer a better interest rate.
Student loan refinancing companies offer the benefit of consolidating and refinancing both federal and private student loans, and often can give you a competitive interest rate.
Is student loan refinancing right for you?
If you’re battling student loan debt, refinancing might be a good fit if:
- You are currently employed
- You have good credit
- You have multiple lenders
- You have a positive payment history
If you have bad credit or have a high debt-to-income ratio, you might not be an ideal candidate for student loan refinancing.
But if you have a positive payment history, good credit and a steady job, refinancing your loans can help streamline the process. Of course, each lender is different and some have stricter underwriting terms than others.
Who should I refinance with?
There are numerous student loan refinancing companies to consider. Each company is different, so if you are looking into refinancing, do your research.
Here is a list of highlights from 3 major players in the student loan refinancing industry.
- Borrowers save an average of $11,000 through refinancing.
- Offers unemployment protection to help put a hold on your payments if you lose your job. They also offer career support to help you find a job.
- They have an entrepreneur program, which can help borrowers launch their business.
- Refinances both federal and private student loans.
- Rates start as low as 1.92% APR (with auto pay).
- Has a social promise “For every degree fully funded on the company’s platform, CommonBond funds the education of a student in need abroad for a full year.”
- Customer service available via phone or email.
Darien Rowayton Bank
- Low rates.
- Offers more repayment term, from 5-20 years.
- No fees.
If you have student loan debt and are sick of paying high interest and multiple lenders, look into all your options. Student loan refinancing might be able to help you manage payments and save you money, so you can spend it where it really matters.
What’s your experience with student loan refinancing? Have you been able to use it to pay off debt and save money?
as: Better Yourself, Career, Education, Student Loans
9 Best Lenders to Refinance Student Loans ($300 – $1,000 Bonus)
When you refinance student loans, you transfer your existing federal and private student loans to a new private lender for the purpose of lowering your interest rate, lowering your monthly payment or consolidating your loans (or sometimes for all three reasons).
This post explains how to find the best student loan refinancing deals and answers all questions related to student loan refinancing.
In the above list of student loan refinancing companies, I’ve selected the top three lenders the fact that they frequently offer the best deals (i.e. lowest interest rates) to our readers. You’ll be in good company if you decide to refinance your student loans using our links, as readers you have refinance millions of dollars of student loans through the site each month.
Biglaw Investor deliberately generates less money from our refinancing referral links than we could otherwise make so that you get a significant cashback bonus. You are also supporting the site if you use our links, making it a win-win-win proposition.
Should you refinance in March 2021?
Federal student loans are currently accruing 0% interest and require $0 monthly payments until September 30, 2021 (the “Zero Interest and Payment Period“).
President Biden has stated publicly that the Zero Interest and Payment Period could be extended past September 30, 2021, so for now we can expect this situation to last for most of 2021.
For borrowers with federal student loans, there’s virtually no reason to refinance your loans during the Zero Interest and Payment Period. This is particularly true given that there is a non-zero possibility of some amount of student loan forgiveness in 2021. At this point, it’s worth waiting to see if such forgiveness will apply to you.
The only rationale for refinancing federal student loans during the Zero Interest and Payment Period is if you plan to pay back your debt over a long period (e.g. 10 – 20 years) and you believe that interest rates will quickly rise after the pandemic is over. I don’t believe this is a good rationale for refinancing now.
If you have federal student loans and you plan to repay your student loan debt eventually, you should use this opportunity to pay down as much of the principal as possible while you don’t have the interest accrual working against you.
On the other hand, if you have private student loans, including loans that you have already refinanced, we are seeing borrowers receive some of the lowest interest rates ever.
As your income increases and your debt-to-income ratio becomes more favorable, you should be refinancing your loans as many times as it takes to secure the lowest interest rate possible.
Refinancing is not that hard and there are no fees associated with refinancing (at least with the lenders on this site), so the only cost is your time while the upside is potentially thousands of dollars in savings.
I’d be checking my rates monthly and refinancing, even if it requires switching lenders, every time I found a lower rate.
Remember, you can refinance your student loans as many times as you want.
When to refinance federal and private student loans
After paying off over $200,000 in student loans myself and helping thousands of lawyers achieve a debt-free lifestyle, here’s what I tell borrowers when they ask if they should refinance.
Refinance federal student loans if you:
- Work in the private sector
- Plan to pay off your loans
- Owe student loan debt less than 1.5 times your income
Refinance private student loans if you:
- Find a lower interest rate
- Have decided to get aggressive about repaying your loans and so are switching from a fixed to variable interest rate
- Want to change your monthly payment
- Haven’t checked what lenders are offering in the market in at least six months (you will probably find a lower rate today)
- Have a better credit score than we you refinanced previously (you may qualify for a better rate)
You can refinance private loans as many times as you want. Some readers have refinanced two, three, four or even more times. The only thing that matters is that find a better rate.
Wait to refinance federal loans until the Zero Interest and Payment Period (discussed above) ends.
Remember that refinancing federal student loans eliminates income-driven repayment, forgiveness and the most generous forbearance options. Private student loans do not have these options.
How to compare the best student loan refinancing companies
Most people only check their rates with two companies or less. Because each student loan company has a different way of accessing capital in the market, you really need to explore your options to see what will get you the best rate.
Generally there are three types of student loan refinancing companies. Some companies, Earnest and CommonBond offer refinancing by selling commercial paper in the credit markets.
Others, Laurel Road and ELFI are backed by depository banks.
The last type, such as Credible and LendKey, act as a marketplace of lenders and give you rate quotes from banks that you probably wouldn’t check on your own.
Finally, all credit decisions, the rate you are offered depends on your credit score.
If you have significantly improved your credit score over the past six months, it’s a good idea to check rates again to see if you can get something better.
Since student loan refinancing doesn’t cost anything (other than your time), you should refinance if you can get a lower rate than what you are currently paying.
10 facts about refinancing
Refinancing your student loans is one of the best things you can do when you graduate assuming you aren’t seeking loan forgiveness.
Why? You’re paying thousands of dollars of unnecessary interest each year. That interest is keeping you from paying down the student loan balance.
And the student loan balance is keeping you from building wealth. So, refinance those loans and start paying them down!
Fact #1: You’ll save a ton of money
Compound interest is a wonderful thing. Compound interest in reverse will kill you. If you’re paying an average 6.8% interest on your student loans, you need $566 a month for every $100,000 you’ve borrowed just to cover the interest alone.
Fact #2: Refinancing is usually quick and easy
When I graduated from law school, nobody refinanced student loans. When the original refinancing players showed up in 2013, there were lots of problems handling applications and processing a deluge of professionals interested in refinancing their loans. Those days are over.
You can get a preliminary quote within five minutes. If you have all your loan documents together, it might take you another 15 minutes to submit the application electronically.
I recommend you check around with all the different companies (pretty easy once you have your paperwork together) to get the best rate.
Fact #3: You don’t have to refinance all of your loans
Sometimes a lawyer is worried about refinancing everything at the same time. Maybe you have an attractive fixed interest rate on an undergraduate loan? There’s no need to include it in the package that gets refinanced.
Maybe you want to dip your toe into the waters but keep some of your loans in the federal program. There’s no requirement to refinance student loans in bulk. Refinance the portion that feels comfortable and keeping moving.
Fact #4: You get better service
There’s a reason the federal government sued Navient in early 2017. The federal student loan servicers have a history of customer complaints. Specifically, the government alleged that Navient “processed payments incorrectly; created obstacles by providing bad information and failed to act when borrowers complained.
” Having seen them set such a low threshold, you’re ly to be impressed with a modern web interface, the ability to easily make extra payments and flexible policies.
While no company is perfect, the student loan refinancing market is extremely competitive at the moment which means each company has to work hard to win your business.
Fact #5: Consolidation and refinancing aren’t the same thing
Many people mix up these terms. Consolidation is combining all of your loans into one federal loan.
Unfortunately (for you), the government averages the interest rates of all of your loans and then rounds them up to the nearest 1/8th%.
Refinancing occurs when a private bank or lender repays your federal loans and issues a new loan to you, typically at a much lower interest rate. Refinance. Don’t consolidate.
Fact #6: Refinancing doesn’t eliminate your debt
Refinancing is the first step in beating back the interest rate monster. But don’t get confused into thinking that you’ve actually made progress in paying off your debt. Refinancing student loans is just the first step.
While the $12,000 in annual interest kept you from making headway against paying down your federal student loans, it’s the $200,000 of debt that you’re going to have to pay eventually before you can build real wealth.
To defeat the $200,000 debt, you’re going to have to make consistent monthly payments and throw any extra one-off “bonus” money that comes your way as you’re making payments toward your student loans.
Fact #7: You can refinance again later
If you’re just starting your career, you might not get the best rate due to your credit score and debt-to-income ratio. Or maybe you’ve paid off half your loan and are now convinced that a variable rate makes sense for the rest of the payoff. There’s nothing stopping you from refinancing your loans again.
You’ll get the bonus money every time you do it and the refinancing companies probably won’t care, since their business model is selling your student loans into the bond market.
There’s also the possibility that in the future we will see low interest rates (people have been saying for years that interest rates can’t get any lower, but then they do).
Fact #8: Don’t refinance if pursuing student loan forgiveness
Refinancing is not right for you if you plan on having your loans forgiven under Public Service Loan Forgiveness (PSLF) by the U.S. Department of Education or any of the income-driven repayment plans (e.g.
IBR/PAYE/REPAYE). Forgiveness programs are only available to holders of federal loans. If you refinance, your federal loans are paid off and you now owe a private lender.
Don’t refinance if you plan on seeking forgiveness.
Fact #9: Don’t fear the student loan debt monster
Many lawyers are afraid of refinancing their student loans. What are those lawyers really worried about? They’re worried they might not be able to make monthly payments. But if that happens, it’s not the student loan companies can repossess your brain. Student loans are an unsecured debt.
If you stop paying, the student loan companies have limited recourse. They’ll report you to the credit bureaus. But all the credit bureaus can do is lower your credit score. Your credit score is the least of your problems if you can’t make student loan payments.
If you’re sure that you’re going to pay off your loans eventually (and forgo seeking forgiveness), then it’s time to refinance the student loans.
Paying an extra $7,000 a year in interest so that you can return to REPAYE payments “just in case” is a very expensive insurance policy premium that doesn’t seem worth it to me. Most private lenders offer deferment loans terms and hardship options today anyway.
Fact #10: You get cash back and special service
You’re already going to save tens of thousands of dollars in interest when you refinance. But I’ve got an even better deal for you: extra cash in your pocket. I’ve negotiated a special deal with each of the main refinancing companies so that you get a little extra cash back when you do (and you help support this site).
Plus, when you refinance through one of our links you’ll be part of The Biglaw Investor family. It’s hard for a student loan company to ignore a customer that’s literally refinancing millions of dollars in student loans ( us), so if you have questions (or need some extra help), you’ll benefit from being a “big fish”.
We have dedicated contacts with each company.
Refinancing law school loans
Law school graduates typically start their career with an enormous amount of law school debt. If you’re looking to avoid this outcome, I’ve listed a bunch of ways to pay for law school.
Loan repayment assistance programs (LRAP), scholarships, generous family members and part-time jobs are a few of the ways that law school students have been able to minimize their law school debt while pursuing a legal education.
If you’re a law school graduate who has now entered your repayment period and you’re specifically looking at how to eliminate your law school loans, you have a few options. One is to pursue an income-driven repayment plan, such as income-based repayment (IBR) or REPAYE. Obviously, many conditions apply if you’re pursuing forgiveness of the entire loan amount.
On the other hand, lawyers can often get great student loan refinance rates thanks to having a law degree since your large student loan balance and low risk of default is appealing to student loan refinancing companies that resell the debt in the public markets.
The great thing about student loan refinancing is that there are no origination fees or prepayment penalities, so over the life of your loan you’re incentivized to refinance whenever you can get a lower rate (since even small decreases in your student loan interest rate can result in saving thousands of dollars.)
Typically a student loan refinancing company will look at your credit report and credit history in determining the student loan refinance rate they can offer you. You are also usually offered a small discount if you agree to automatic payments deducted from your bank account.
In my experience, I’ve seen lawyers get better loan terms if they work in the private sector vs the public sector, but that is mainly a factor of having a higher starting salary if you work in the private sector.
Either way, if you are able to lower your interest rate, you student loan repayment term should be shorter (less interest means you’ll pay off your loans faster) as your interest payments will be lower which allows you to reduce your principal balance faster.
3 Strategies for Saving Money on Your Student Loans
Source: Flickr user [email protected].
Are you feeling stressed about your student loan payments?
Don’t worry, you’re not alone. Each year, hundreds of thousands of students graduate from college with debt. Some borrowed more than others, but almost all students agree that paying back your student loans can affect everything from buying a new car to buying your first house or even having children.
Don’t worry. If you’re struggling with your student loan payments, there are almost certainly some options available to you.
While some students may be able to qualify for things forgiveness or forbearance on their debt, the majority of students won’t be able to simply make their loans go away. But almost every student can use either one or a combination of these three strategies to help start saving money and making their payments more manageable:
1. Consolidate your student loans
If you have not already looked into student loan consolidation, this should be your first step. Consolidating your student loans will not only make your life easier (fewer payments and due dates) but can also save you money.
Students can start saving money by compiling their debt into one single payment because they qualify for better terms on their loan. This may mean longer financing terms or lower interest.
Good things about student loan consolidation:
- Can simplify your student loan repayment schedule
- Can lower your monthly payments
- May qualify you for extended financing or better terms
- May qualify you for additional repayment options (such as income-based repayment)
Bad things about student loan consolidation:
- May extend your repayment period
- If your repayment period is extended, you will pay more in interest over the life of your loan
If you’ve already consolidated your loans or consolidation isn’t right for you, then you may look into options to refinance.
As with consolidation, there are some good and bad aspects to this strategy. It can save you money and, depending on the composition of your loans, simplify your repayment considerably. But, refinancing, too, has the potential to extend your repayment period and add additional interest costs to the life of your loan.
If you have existing private loans that you have refinanced previously, you may be able to get a better interest rate than when you originally took out those loans. But, if you’re refinancing your federal loans through a private lender, you may lose some of the protections that are available via the federal student loan programs.
Good things about student loan refinancing:
- Can qualify for lower interest rate
- Can reduce monthly payment
- May save money over the long term if you’re able to qualify for lower interest rates
- Can simplify loans by refinancing and consolidating at the same time
Bad things about student loan refinancing:
- May cost more over the life of the loan if the refinancing terms involve a longer payback period
- May eliminate the opportunity for deferral, forbearance, or income-based repayment options if federal loans are refinanced through a private lender
Almost all federal student loans are eligible for a number of income-based repayment plans through the U.S. Department of Education.
These can be a great option for students who need to restructure their loan, or if their long-term plans include pursuing Public Service Forgiveness.
As with refinancing and consolidation, there are some potential drawbacks to these programs as well. Although they may offer you a lower payment in the immediate future, it could mean paying much larger payments in the future as your income increases. It can also lock you into a longer repayment period than you’d if your income remains low for many years.
Good things about income-based repayment plans:
- Can lower your monthly payment immediately
- Usually a percentage of discretionary income, which means you won’t be forced to pay more than you can (theoretically) afford
- May qualify you for loan forgiveness after 20-25 years
Bad things about income-based repayment plans:
- ly extends your repayment period until loan forgiveness
- Choosing income-based repayment locks you into that program for the life of your loan
- Payments could increase considerably if income also increases
Choosing the Right Strategy to Save Money on Your Student Loan
You’re probably reading over these three strategies and thinking to yourself that none of them sound quite perfect.
Of course, that’s correct. None of these options are meant to “free” students from their student loan debt. Instead, they’re created to allow students to manage the amount they owe.
As a student, it’s up to you to determine which one is right.
There are many factors to consider, but the most important thing is to consider not just the short-term implications, but also the long term impact that any of these strategies might have.
Is lowering your monthly payment today worth possibly paying more over the life of the loan? Depending on your circumstances–and your career–this may make sense, or it may not.
So, carefully consider your options, your plans, and your goals. Then decide which one makes the most sense for you.