An Honest Guide to Student Loan Refinancing: When Is It a Good Idea?
By the end of 2020, student loan debt in the United States had reached a total of $1.7 trillion. This is an all-time high, but experts are suggesting that the number will continue to climb.
Unfair interest rates, inflated education prices, and a lack of knowledge all contribute to the student debt problem. For those who are stuck in these loans, it may seem like there’s no way out.
But, what if there is? What if you could start over and get a better deal for your student loans?
With student loan refinancing, you can have this. You may not be able to start completely over, but you can adjust the terms of your student loans to get a better deal than you’re currently getting.
To learn more about student loan refinancing and what the best student loan refinancing options are, keep reading. We’re going to help you determine whether or not this option is right for you.
What Is Student Loan Refinancing?
Student loan refinancing refers to the process of swapping out your current loan for a new one. Many people refinance their loans so that they can get a lower interest rate and/or a lower monthly payment.
Over time, you could save a lot of money by refinancing your loan. Even better, you may be able to finish paying off your loan earlier. So, you’ll get out of debt faster and start building wealth.
Can Student Loans Be Refinanced?
It’s common for people to think that they can’t refinance their student loans. But, this is a misconception.
Just like other kinds of loans, you can refinance student loans. However, the misconception that you can’t is what keeps people from doing it.
Since people think that they can’t refinance, they become stuck with the same old interest rate that they originally got. Now that you know that you can refinance your student loans, you can take control of your loan terms.
Is Refinancing Student Loans Worth It?
Student loan refinancing could save you tens of thousands of dollars. The exact amount that you could save depends on how early you refinance the loan.
There are three ways that you can save up this much money by refinancing the loan:
- You lower the required monthly payment for the loan
- You may be able to pay off the loan faster and save money in interest over time
- You’ll develop a lower debt-to-income ratio as you pay off the loan
Another great benefit to refinancing student loans is that there aren’t any fees to do so. Unlike refinancing a mortgage, refinancing a student loan doesn’t require an origination, application, or prepayment fees.
However, this doesn’t mean that there won’t be any other fees such as late fees. So, you should read your loan agreement to make sure that you’re aware of every term and condition.
What Are the Best Student Loan Refinancing Options?
If you’re going to refinance your student loans, you need to look at multiple offers before you settle. Some lenders can offer better terms than others. So, it’s important that you shop around for the best rate before you decide on the one that you want.
If you have a lot of similar options, you should consider the terms of the agreements. Pick the loan option that allows for more flexible payments, forgiveness, and bonus programs.
Overall, you want to look for the loan terms that are going to save you the most money. So, focus on crunching the numbers and getting a better deal.
When Should I Refinance My Student Loans?
Not everyone is eligible to refinance their student loans. Just like any other loan application, refinancing your student loans requires a good credit score and enough income to support all of your expenses and more. Some refinancing programs even require that you already have your degree.
So, it would be very difficult for someone who is still in school to refinance their loans.
With this in mind, you shouldn’t wait until you have the perfect credit score to refinance your loans. If you have a lot of debt, bringing up your credit score is going to be difficult anyways.
Even if your credit score is good or average, you can still qualify for better loan terms.
Those of you who have private student loans should also consider refinancing. Since your loans aren’t eligible for government assistance or forgiveness programs, you have nothing to lose by trying to get a better rate.
Overall, you should refinance your student loans if you have stable finances and the potential to get a better rate. If anything, it’s worth shopping around to see if you can find a better deal with another lender.
Keep an Eye on Interest Rates
As you’re looking to refinance your student loans, you need to keep an eye on the current interest rates in the market. You don’t want to refinance if the current interest rates are high. Otherwise, you could end up with inflated rates that aren’t going to save you all that much money.
If you can refinance when interest rates level out or go low, you can lock in an amazing rate for the remainder of your loan period. Then, you wouldn’t have to worry about rearranging your finances again.
If you’re considering refinancing and the interest rates are high right now, keep an eye out for the drop that should come soon. Rates are constantly fluctuating.
You can also check out this page to learn more.
Learning More About Finances
Student loan refinancing is a great choice for anyone who’s trying to save money by getting a lower interest rate and/or a lower monthly payment on their student loans. Over time, refinancing your student loans can save you tens of thousands of dollars.
So, if you’re considering it, go ahead and start shopping around. Even if you want to wait for lower interest rates, you may want to start looking at the terms and conditions that some lenders offer with their student loans.
To learn more about financial information like this, check out the rest of our blog.