There has been so much talk lately about student loan forgiveness. What we have been hearing is that the White House has zeroed in on a plan that would possibly cancel at least $10,000 in student loan debt per eligible borrower. The debt cancellation would be limited to borrowers with family incomes of $125,000 or less and would apply only to people with federal loans, not private ones. Have you considered refinancing your student loans?
According to student loan Statistics, Student loan debt in the United States totals $1.748 trillion. The debt accumulation rate is slowing, and recent analytics indicate that most consumers manage their student loan debt responsibly. The outstanding federal loan balance is $1.620 trillion and accounts for 92.7% of all student loan debt.43.0 million borrowers have federal student loan debt. The average federal student loan debt balance is $37,667 while the total average balance (including private loan debt) may be as high as $40,274.
With all the talk on loan forgiveness, should you refinance your student loan debt?
What Does Refinancing Your Student Loan Mean
Refinancing your student loans involves taking out a new loan to pay off your existing educational debt. For some people, it’s a smart move that can save money and improve their financial lives. For others, student loan refinancing may not be the right step. Read on to learn how to decide if refinancing student loans makes sense and the steps you can take to start the process.
Should I Refinance My Student Loan
Not everyone can qualify to refinance student loans. Before you decide to refinance your student loan, there are a few factors to consider:
- Will the savings make a difference? It’s not necessary to wait until you have perfect credit to refinance, as long as you can qualify for a better rate than you have now. See if the lender offers a student loan refinance bonus, to boost your savings even more.
- You have private student loans. You pretty much have nothing to lose by refinancing private student loans because these loans aren’t eligible for federal loan programs. Both private and federal student loans are eligible for student loan refinancing. But refinancing federal student loans turns them private, which means you’ll lose access to federal repayment plans, forgiveness programs, and other perks.
- You have student loans with high variable rates. It can be difficult to predict payments with a variable rate loan, and even loans with low variable rates can get more expensive to repay. Before they rise, consider refinancing to lock in a fixed rate.
5 Steps to Refinance Your Student Loan
Below are five steps you can take if you’re ready to refinance your student loan.
Know Your Credit
One of the first steps a lender will take is checking at least one of your credit reports and credit scores. Reviewing your credit scores before refinancing will help you understand where your credit stands and confirm that your reports are error-free. If you find that your credit isn’t in the best shape, you can work to improve your credit before you try to refinance.
Shop for the Best Rate
Shop student loan refinancing rates and check with multiple lenders to find the best rate is a key element in successfully refinancing your student loans. Search online to compare lenders’ rates and fees. If a lender offers a prequalification tool, take advantage; these types of applications require only a soft credit inquiry on your credit report.
Take the time to check rates and fees with at least three separate lenders before you commit to a new loan.
Choose the Best Loan Offer
After reviewing at least three loan offers, you’ll be better equipped to choose the option that suits you best. The lender you choose to work with may let you select your preferred repayment terms as well.
A shorter loan term might help you secure a lower interest rate and pay off your debt faster. However, your monthly payment would likely be higher. If you extend the loan term, on the other hand, you could reduce the size of your monthly payments and make managing your budget easier. The trade-off would be more interest paid over the life of the loan and more time passing before you eliminate the debt.
Consider the Pros and Cons
When you refinance student loans, you have the chance to adjust your monthly payment by choosing new repayment terms, usually between five and 20 years. You’ll also get to choose between a fixed rate, which stays the same over the life of your loans, and a variable rate, which could fluctuate with the market over the years.
Read the Terms of the Loan Carefully
Be careful to read the terms of the loan before moving forward. Make sure you understand the lender’s policy on forbearance or deferment periods for example, if you lose your job, what kind of protections do you have? You should also look for information on the co-signer release policy if there is one.
The Bottom Line
Refinancing has the potential to save you money on interest and restructure your debt with a plan that’s beneficial for your finances. But before you decide to move forward with refinancing, especially a federal loan you would be giving up federal protections since these could come in handy if you lose your income or if you are in danger of going into default.
It is also important to consider all the student loan refinancing tips above before making changes. That way, you won’t make a challenging situation worse but instead can make an informed choice that helps you pay off your student loan debt.
Have you considered refinancing your student loans?