Reasons to refinance your student loans
Introduction
We all know student loan refinancing can help save you money and make your debt easier to manage. But if you’re on the fence about refinancing, you might need a little more convincing. Here are five reasons why it might be worth your while to refinance your student loans.
To save money.
- Save money on interest. The amount of interest you pay is one of the biggest costs of any type of loan, including student loans. If you refinance your student loans, you can often save hundreds or even thousands of dollars by getting a lower interest rate and paying off the loan faster.
- Save money on fees. Some lenders charge origination fees upfront when they offer you a loan—and that’s money that goes right back into their pockets instead of yours! When comparing student loan refinance options, make sure to calculate whether any lender fees would be cheaper than what it would cost to pay off your original loans early (or at all).
- Save money on monthly payments. Refinancing doesn’t just mean cutting down how much time it will take for your debt to be paid off; it also means cutting down how much each month’s payment will be! That can translate into thousands more dollars each year in extra cash flow for bills like rent and utilities…or even fun stuff like new clothes or vacations!
To consolidate private and federal loans.
If you have both federal and private student loans, refinancing can help you consolidate your debt into one loan. This could reduce the number of payments you make each month and lower your monthly payment amount. A lower interest rate can also help manage your debt by lowering the total amount of interest paid over time. Refinancing can also simplify the process of repaying all of your student loans by consolidating them into a single monthly payment that is easier to manage on a budget.
Finally, refinancing may also be an effective way to avoid defaulting on federal student loans when faced with other financial crises such as job loss or unexpected medical costs.
To get a better rate.
- Refinance to get a lower interest rate. Typically, your student loans will have variable rates that change over time with the market and are tied to the prime rate or federal funds rate. If you refinance, you may be able to get a fixed-rate loan at a lower interest rate than what your current loans have.
- Refinance to get a lower monthly payment. If you have high-interest rates and large loan balances, refinancing can help you save money by lowering both of those numbers so that it’s easier for you to pay off your debt faster without having to make any other changes in how much money comes in each month or how much goes out each month (except for the new amount going towards paying off student loans).
- Refinance to get a shorter term. By extending the term on your student loan from 10 years down closer to 20 years – say 15 instead of 10 – it means that instead of making payments for 240 months (20 years), now it’s only 150 months (15 years), which means half as many payments but still at roughly equal total cost because there’s more interest being paid over time due to having longer repayment periods.”
To change the term of your loan.
You can also change the term of your loan. Refinancing from a longer to shorter repayment period (or vice versa) will lower your monthly payments and make them more manageable. For example, if you have a 20-year loan at 6.8% APR with monthly payments of $500, refinancing to a 15-year loan at 5% APR with monthly payments of $400 will reduce your monthly payment by $100 per month.
The standard loan term is 10 years but many lenders offer terms of up to 30 years. It’s important to note that when you choose a longer repayment plan, interest continues to compound over time so while this may lower your initial payment amount it will result in even higher total interest costs over time compared with other options such as refinancing into a lower APR rate or extending the length of the term but keeping an unchanged interest rate
Late on payments or near default? Refinance to help make on-time payments.
If you are late on payments, it might be time to refinance. Refinanced loans with lower interest rates make it more affordable to make on-time payments.
If your student loan is near default, refinancing can delay or prevent a student debt crisis by lowering the monthly payment amount. A lower monthly payment makes it easier for borrowers struggling with financial hardship due to unemployment or illness to stay current on their debt obligations and avoid defaulting on their loans.
If you’re wondering if student loan refinancing is right for you, these five reasons might come in handy.
- Refinance to save money. If you’re wondering if student loan refinancing is right for you, these five reasons might come in handy.
- Refinance to consolidate private and federal loans. If you have both public and private student loans, refinancing could be a good idea if it allows you to get rid of the higher interest rate on your private debt by consolidating all or some of it into a single new loan with a lower rate (and hopefully shorter term). This strategy can save money over time because it reduces the amount being paid each month while also reducing the total interest that ends up getting charged over time—but only if lenders allow borrowers to refinance more than just their federally-backed loans into their new account.
- Refinance for better rates. Not all lenders will offer borrowers better rates than those offered by federal programs like Income-Based Repayment (IBR), Pay As You Earn (PAYE), or Revised Pay As You Earn (REPAYE). But some will—and many more are likely willing to offer comparable rates that are still lower than what borrowers might expect from other sources such as credit cards or home equity lines of credit (HELOCs). The key here is shopping around carefully; comparing offers among different lenders can help ensure that no stone remains unturned when seeking out the best deal on one’s financial needs without sacrificing quality service along with cost savings!
Conclusion
Student loan refinancing can be a great option for those looking to save money, get a better rate, or just make their loan repayment more manageable. The reason to refinance your student loans is ultimately up to you.
But if you’re not sure what to do, that’s okay too! If any of these reasons stand out to you as something worth exploring further, we encourage you to speak with an expert who can help walk you through the process and answer any questions that might come up along the way.