Most borrowers have options for refinancing their loans and getting access to better conditions. It’s interesting to point out, however, that individuals having student loan debt usually have only a few refinancing possibilities to pick among.
Though the number of options is relatively small, it’s still possible to find a student loan refinancing option. Here’s everything that you need to know in order to decrease the debt and get more lenient repayment conditions.
Most Important Questions about Student Loan Refinancing
Before looking for the right student loan refinancing option, it’s very important to ask a couple of questions.
For a start, consider why you’re looking for a refinancing option. Are you finding it difficult to make the repayments under the current conditions? Would you like to benefit from a lower interest rate? Or maybe you’re looking for a loan consolidation opportunity that will simplify the process of making all the repayments?
The exact reason will be determining for the choice of the best possibility.
You should also ask about the interest rate reduction you could potentially get. This figure will help you determine whether going through the process will be worth the trouble. Keep in mind that the interest rate and the amount of money you’ll have to pay back will often depend on the loan duration. Since the length of repayment plays a role, it may be difficult to compare loans side by side.
What Type of Student Loan do You have?
The type of student loan you’ve taken will determine your options. For a start, you need to figure out whether you have a private or a federal student loan.
It’s not possible to refinance federal student loans and still keep them federal. The US Department of Education is yet to develop a refinancing program, which seriously limits your options.
If you choose to refinance the federal student loan, you can opt for private loan possibilities. Think carefully about going down this road, however, since a loan that’s no longer considered federal will make you lose your eligibility for government assistance. You will no longer have access to student loan forgiveness options or income-based repayment programs for students.
Private loans are much easier to refinance. All you have to do is look for other options that feature lower interest rates and more lenient terms and conditions.
Comparing the Refinancing Plans
Now that you’ve done the preliminary research and you’ve answered all of the important questions, it’s time to take a look at the student loan refinancing options. It’s possible to decrease the amount you have to pay back significantly, if you dedicate some time to doing preliminary calculations and understanding the differences between the common loan types.
Make sure that you work on improving your credit score in advance. Good credit score will give you access to the best programs and the lowest interest rates.
Next, understand the differences between variable rate and fixed rate student loans. Fixed rate loans, as the name suggests, have a payment that stays the same until you make the final installment. Such loans make it much easier for you to plan monthly expenses but they also come with a high interest rate.
Variable rate student loans have interest rates that could change from month to month. In the long run, these loans often prove to be less expensive than fixed rate loans. Variable rate loans, however, don’t give you predictability and you may experience problems sticking to your monthly budget because of the changes in the figures.
Student Loan Consolidation
Most federal student loans can be consolidated with other types of federal student loans. These include Perkins,
The interest rate on a consolidated federal loan is the average of the individual interest rates of the consolidated loans. The cap on consolidated student loan interest rates is at 8.25 percent. To qualify for federal student loan consolidation, you don’t need to have an outstanding credit score.
When it comes to consolidating private loans, you have a lot of freedom in terms of consolidation. The time of opting for consolidation matters. If you choose a moment during which the interest rate is low, you can save a large amount of money by opting for simple loan consolidation.
Financial institutions, however, will perform credit checks before approving loan consolidation. Thus, dealing with the private loans you have may be a bit trickier than finding options for the consolidation of federal loans.