Many college graduates leave school with high amounts of debt. In the years following their graduation, they may struggle to pay off the money they had to borrow to get an education.
If you’re struggling to make ends meet because of your student loan, you do have some choices for getting your payments back under control. One of the most popular ways of doing that is through student loan refinancing. There is also the loan consolidation option however we’ll mostly talk about refinancing in this article.
What is Student Loan Refinancing?
Student loan refinancing is a way to adjust your loan so that your payments are lower or you have a lower interest rate. Through refinancing your student loans, you essentially take out another loan to pay off the original loan you’ve taken out. You would then make payments on the second loan.
There are a few different ways that refinancing can help you pay off your student loans more easily. First, if you’ve already paid off a sizable chunk of your student loan, the overall size of the loan will be much smaller. When extended over a few years, your monthly payment can be much smaller.
You may also want to refinance if your student loan has a high interest rate. Because interest can make it difficult to really make a dent in the amount of money you owe for student loans, you want your interest rate to be as small as possible. Refinancing could give you a lower interest rate, making it easier to pay off your debt.
Finally, refinancing may also extend the loan’s final due date. By giving you more time to pay off your loan, you can make smaller payments each month without hurting your credit score or financial standing.
Who Qualifies for Student Loan Refinancing?
Whether or not you qualify for student loan refinancing will depend on who your loans are taken from originally and who you would like to refinance through. Because student loans are either federal or private, this will influence how you need to refinance your loans.
If you have a federal student loan, then you will need to refinance your loan through the federal government or you have the option to take out a private refinance loan to pay off your government loan. In most cases, refinancing will not reduce your interest rate by much. However, refinancing through the federal government can help you secure more manageable payments each month.
For private loans, your credit score will need to be considered when you’re looking to refinance. If you do not have a strong credit score, then you may struggle to find a way to refinance your loans. Your interest rate will also be dependent on your credit score.
When working with a private bank to refinance your loans, you may be provided with more options. However, it is important to note that private loans are not protected in the same way that federal loans are. Be sure you know the differences before you decide to refinance.
Who is Refinancing Right For?
If you’re looking to save money on your student loan payments, you may want to consider refinancing your student loans. But a refinancing program is not right for everyone. If you are not struggling to make ends meet, then a refinancing program may not be right for you.
While a refinancing program can help you save money each month, it typically means you will end up spending more in the long run. Because a refinancing plan extends the amount of time you have to pay off the loan, you have a few more years where interest is able to accumulate. This means the total cost of the loan can go up.
Refinancing a loan is also beneficial for individuals who were unhappy with the provider they took their original loan from. If you’ve experienced poor customer service, refinancing is a great way to select a new bank to work with.
If you’re considering refinancing your student loan, do your research before selecting a program or bank to work with. While refinancing can be the saving grace some graduates need, it can also be a bad decision for those who didn’t really need it.