According to recent surveys, refinancing a student loan can lead to savings of over $270 per month and nearly $14,000 over the life of the loan. But there is more than one advantage of this financial move to consider:
Firstly, accessing lower monthly repayments can lower your debt-to-income ratio and free up cash, thus giving you access to other financial products like mortgages.
Alternatively, you could keep your repayments as they are but access lower interest rates. Or, you might keep the same interest rates, increase monthly payments, and shorten your loan life, thus saving thousands in interest over time.
Plus, unlike refinancing a mortgage, refinancing a student loan does not involve origination, application, and prepayment fees.
If your credit score has improved since you graduated or you have the chance to take out a loan with the support of a cosigner with a great financial history, refinancing is for you. A creditworthy relative or friend can help you obtain a more convenient refinance and access top loan terms.
If you have multiple loans – such as federal loans from multiple services or a mix of federal and private student loans – refinancing them allows you to consolidate them into one.
This means that you will only need to deal with a single monthly payment with the lender that offers you the best rates and terms. In turn, this move can streamline your finances, allow you to benefit from the same interest rates across your loans, and lower your debt-to-income ratio.
If you have a high credit score and a solid financial history, the benefits of refinancing outweigh the drawbacks of this choice. Nonetheless, refinancing a student loan is not a decision to be taken lightly – and certainly not while federal loans’ interest rates are still at 0%!
Here’s what to keep in mind:
Student loan refinancing companies require you and your cosigner to meet strict requirements. Firstly, you’ll need to have a degree to qualify. Additionally, your credit score should be no lower than 660-670.
Federal student loans offer multiple repayments protection options, including deferment, forbearance, and loan forgiveness. Make sure your refinancing lender offers some alternatives to protect your financial situation in the case of prolonged unemployment or financial fallbacks.
Federal loans offer the opportunity to switch from standard repayment plans to income-driven repayment plans, which allow you to extend your loan life by 10 years. When refinancing, you won’t be able to benefit from multiple repayment options.
While refinancing a student loan can be beneficial, it is not the best choice for all graduates. Make sure to partner with an experienced lender who can recommend the best time to refinance, as well as the best new loan terms and rates for your financial circumstances.