We all know the feeling. You get your student loan bill in the mail and a wave of panic washes over you. While you may not have any control over the amount of debt you owe, there are some things you can do to make it easier to pay off those loans. One option is refinancing your student loans, but what exactly does that mean? In this article, we’ll help you determine if you should refinance your student loans:
How does student loan refinancing work?
Once a new loan is approved, you’ll make monthly payments to your new lender instead of paying off your old one. The new lender will disburse funds directly to your old lender and then forward the payments to them on your behalf. This helps avoid late fees since you’ll be paying more consistently throughout the month rather than in large chunks at the end of each payment period.
If you have multiple loans that are being refinanced into one larger loan (a consolidation), then this process is even easier—all it takes is a single application and approval process for all of your student loans combined into one big new one!
Where can I refinance my student loans?
You can refinance your student loans with a number of different types of lenders, including:
- Banks, credit unions, and other lenders that offer private student loans.
- Online lenders that specialize in refinancing and personal loans.
- Credit unions that offer student loan refinancing services to their members.
These are just some examples of where you might look when you consider refinancing your student loans. Before you apply with the first lender you find online or at the local bank, it’s important to do your research on each company’s eligibility requirements and rates so you’re sure they’ll work for your needs as well as your budget.
Who is eligible for student loan refinancing?
There are only a few requirements that you need to meet in order to refinance your student loans. You must be:
- A US citizen or permanent resident
- At least 18 years old
- Have a credit score of 640 or higher (check yours now)
You also have to be able to provide documentation of your income, as well as proof that you are currently in good standing with any other lenders and/or creditors. You cannot be in default on any federal student loan accounts, and if you have private loans, they should not be passed due or delinquent.
Is it better to refinance my federal or private student loans?
The answer to this question depends on your individual situation. Federal student loans are provided through the federal government and are available to everyone regardless of their credit history or debt-to-income ratio. Unlike private student loans, they offer more flexible terms, such as grace periods and income-driven repayment plans that allow you to pay back your loan according to your ability to afford it (as opposed to making monthly payments based on pre-set interest rates). This flexibility comes at a cost: subsidized federal loans have higher interest rates than unsubsidized federal loans (see below), while the interest rate of private student loans is determined by lenders and can be higher or lower than what’s offered by federal student loan programs.
Private student loans typically require better credit scores than federally guaranteed education financing options do—but there are exceptions! If you don’t meet the minimum requirements for receiving a bank-based private education loan, you can still qualify for one if someone agrees to cosign for you. A cosigner is someone who vouches for your ability to take on this debt; their good name will help reassure lenders that they’re willing to stand behind any payments made on behalf of both parties involved in the transaction (the borrower and his/her parents).
What are the pros and cons of student loan refinancing?
There are some pros and cons to refinancing your student loans. Here’s what you need to know:
- Pros: Lower monthly payments, lower interest rates, consolidate multiple loans into a much easier-to-manage single loan.
- Cons: Risk of higher monthly payments, risk of higher interest rates, risk of losing valuable benefits, risk of losing eligibility for some income-driven repayment plans
There are several things to consider before you refinance your student loans. Take some time to learn about the process, the options available, and how those choices could affect you down the road.
It’s important to understand what student loan refinancing is, and what it means for you. Refinancing your student loans means that you’re consolidating all of your existing loans into one new loan with a different lender (a bank or credit union). This can give you more favorable terms, like lower interest rates and an extended repayment period.
However, refinancing isn’t necessarily a good idea for everyone. It has several drawbacks:
- Refinancing may cost more in the long run due to higher interest rates or fees
- You could lose eligibility for certain federal benefits like income-based repayment and forgiveness programs if you refinance with a private lender
Refinancing your student loans can be a good way to reduce your interest rate or lower your monthly payment. But it’s not the only way you can save money on your loans, so be sure to consider all of your options before refinancing.