Refinancing student loans
Student loan repayment can become a huge obstacle for young people today. The average graduate from the Class of 2016 owes more than $37,000. More depressing news: The Federal Reserve reports that more than 44 million Americans owe more than $1.3 trillion in student loan debt – with a delinquency rate of 11.2 percent.
Graduates blame the heavy burden of student loan repayment for everything from impacting their ability to buy a car or house to getting married and starting a family to saving for retirement. And there’s no reason to hope for student loan forgiveness any time soon.
The above statistics and news seems pretty bleak. But borrowers can get some help when they refinance student loans – it won’t make the debt go away, but it can make it easier to handle.
Compare student loan refinancing rates
Should you refinance your student loans?
Why should graduates consider refinancing student loans? When you refinance student loans, you most often are looking for lower monthly payments – whether from lowering your interest rates, lengthening the repayment term, or both. Extending the term – even when lowering the interest rate – can significantly increase the overall amount you’ll repay despite significantly decreasing your monthly payment. Translation: You’ll pay less per month, but because you’re making payments for a longer time, your overall payment could be greater than if you’d stuck with the original loans.
So it’s important to start the process to refinance student loans with a clear objective. Which is your primary student loan repayment goal:
- Get a better interest rate.
- Lower my monthly payment.
- Pay off my loan quicker.
Want to know how these three interrelate? Check out this Student Loan Repayment Calculator. By changing the numbers on the left, you can see how it affects the amount of principal and interest on the loan, the total of the repayment, the total amount of interest you’ll pay, and your monthly payment as the terms change.
What’s the benefit of student loan refinancing? Credible.com, one of the websites that offers to help with the process of matching borrowers with lenders, says its average user saves $18,668 when he or she refinances.
What you need to know when you refinance student loans
When you’re ready to refinance student loans, you need to come to the table with a few pieces of information. Number one, as mentioned above, is that you should approach the process with a specific goal in mind.
Here’s the other information you’ll need for student loan refinancing:
- The names and types of student loans you have.
- The amounts and interest rates of each of the loans.
- The repayment period. For most federal loans, it’s 10 years.
- Your credit score. But relax, it doesn’t have to be great to qualify. In general, however, the better your score, the lower your interest rate.
One final thing to know when you refinance student loans: Borrowers who refinance federal loans with private lenders lose certain federal borrower benefits, including access to income-driven repayment plans – in which your payments are based on a percentage of your income after graduation – and the chance to qualify for loan forgiveness after a specified number of years.
But for many people, refinancing student loans can provide a lifeline to escape otherwise crushing debt. Just be sure you go into it with your eyes wide open.