The Benefits and Drawbacks of Refinancing Your Student Loans
When you refinance student loan debt, you’re effectively trading your old loans for a new one. Student debt refinancing, on the other hand, isn’t for everyone. Here are some advantages and disadvantages of refinancing student loans.
Student Loan Refinancing’s Advantages
Your interest rate will be reduced.
If you refinance your student loans, you may be able to get a cheaper interest rate. Depending on the size of your loan and the new loan conditions, you might save thousands of dollars. Let’s imagine you have $50,000 in student loan debt with a 7% interest rate and a 10-year repayment period. You would save $8,918 if you could refinance that amount at a cheaper rate of 4% for the same period.
Pay off your school loans as quickly as possible.
You may be able to pay more toward the main loan sum since you are paying less interest on your student loan.
Make handling your student debts easier.
Student debt refinancing is a type of consolidation. Refinancing student debts consolidates several loans from various lenders into a single loan. This implies only one payment each month and only one due date. This might help you avoid late fines and missed payments.
Make your monthly payment smaller.
You may be able to get flexible repayment terms from some private lenders. If you pick a longer payback period, your monthly payments may be cheaper. Keep in mind, though, that the longer your term, the more interest you’ll pay.
Remove a cosigner from your student loan.
If a parent or other family member cosigned your student loan when you were in college, they may wish to get rid of it. If your present lender does not provide or you do not qualify for a cosigner release, refinancing the loans will delete the cosigner because it is a new loan.
Look for a new loan servicer.
If you are dissatisfied with the service provided by your current student loan servicer, refinancing may be able to help. Look for lenders with great customer service ratings
Allow a cosigner to be released.
If you have a cosigner on any of your current private student loans, refinancing them usually relieves your cosigner of any future obligations.
Cons of Refinancing Student Loans
You will no longer be eligible for student debt forgiveness.
If you convert a federal loan into a private loan, you will no longer be eligible for PSLF if you work as a teacher, nurse, lawyer, or another public servant. This includes the possibility of a large-scale cancellation of federal student debts, as has been advocated. Student loan forgiveness through the Department of Education is not available for private student loans.
There are no income-driven repayment programs available for private student loans.
If you have federal student loans, you may be eligible for a repayment plan based on your income. This is a method of tying your monthly payment to a proportion of your monthly income. Income-driven repayment programs are not available for private student loans. This option is no longer available if you convert a federal loan into a new private loan.
Private student loan deferments are not as liberal as federal student loan deferments.
There are methods to delay student loan payments if you have federal student loans. These safeguards allow you to defer payments temporarily if you are experiencing financial difficulties or if you lose your job (for up to three years). If you refinance your federal loans, you may have fewer alternatives or may not be eligible for any forbearance or deferral at all, depending on your lender.
Variable interest rates may rise in the future.
You have the option of student loan refinance with a variable or fixed interest rate. If you choose a variable interest rate on your new loan instead of a fixed one, the interest rate may rise over time. Variable interest rates are tempting because they begin lower than fixed interest rates. If you are certain that you will be able to pay off your student loans promptly, a variable rate loan is the best option.
For federal student loans, you will forfeit your grace period.
You will lose the grace period if you are just graduating and refinancing federal student loans. A grace period is a period of time after you leave school or graduate when you are not required to make payments. It normally lasts six months.
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Refinancing is not available to everyone.
When it comes to refinancing student loans, there are a few standards to meet. Lenders have different criteria, but most will demand steady work, a degree, a minimum amount to refinance, a credit score of 650, and a debt-to-income ratio of less than 50%. It’s time to determine if student debt refinancing is best for you after reading the benefits and drawbacks. If you decide to refinance, be sure to shop around for student loan refinancing lenders to ensure you receive the best deal.