Student loan debt is at an all-time high in the United States, with an estimated 44 million Americans holding 1.4 trillion dollars in student loans. That number is projected to grow, as the costs for higher education continue to rise at colleges and universities across the country. In this article, I’ll show you some great tips on how to refinance your student loans and save a lot of money in the process!
Private Student Loans vs. Government Loans
While the majority of student loans are held by the federal government, many student loan borrowers have private student loans. These loans are issued by private banks and other lenders, and have different terms and conditions based on a number of factors, such as the borrower’s creditworthiness.
In many cases, the student borrower is required to have a co-signer in order to obtain a private student loan if he or she is under the age of 25 and/or does not have a strong credit history. Private student loans may have fixed or variable interest rates, and can be issued by a number of different lenders.
Save Money- Refinance Your Student Loans
What many Americans with student loan debt are not aware of is that if they have private student loans, they may be eligible to refinance these loans. Refinancing is a type of loan consolidation for private student loans. When done through a private lender, refinancing and consolidation are considered the same thing.
A borrower essentially takes out a single private loan to pay off multiple student loans (both private and federal loans). For borrowers with multiple student loans, it can be helpful to refinance student loans into a single payment.
Student Loan Refinancing Has its Advantages
Refinancing private student loans is often beneficial for borrowers with high interest rates or loans with variable interest rates. Based on your credit score and other factors, you may be able to obtain a lower interest rate through refinancing than you were able to qualify for when you originally applied for the student loan. You may also want a fixed rate loan, particularly as the interest rate is currently rising.
Things to Watch Out for When Consolidating Student Loan Debt
However, if you plan to refinance your federal student loans along with your private student loans, you should be aware that you will lose certain protections by refinancing. Federal student loans offer loan forgiveness, income-driven repayment plans and other options, such as automatic discharge upon death or permanent disability.
If you refinance your student loans, you will lose these benefits.
Carefully consider if it makes sense to refinance your federal student loans along with your private student loans before making this decision. If you do not know whether you have private or federal student loans or what your interest rates are, you can find this out by requesting a copy of your credit report for private student loans, and then getting a copy of your loan terms from your loan servicing company.
For federal student loans, you can log onto the Federal Student Aid portal to obtain a copy of your federal student loan documents.
Student Loan Interest Rates
Typically, interest rates for student loan refinances range from 2 percent to 9 percent. You can search online for student loan refinance calculators to input your information and determine if refinancing your student loans will save you money.
The interest rate that you will receive will be based on factors such as your credit score, job history, educational background, and income. You will generally not be approved for a student loan refinance unless your credit score is at least in the mid-600’s.
Beware of Scams
It does not cost money to refinance private student loans, which can be done directly through the lender. You may receive emails, calls or letters in the mail from companies that offer you help with refinancing or consolidating your student loans; these are often scams that are attempting to charge you for something that you can do yourself for free.
When Your Refinance is Approved
If you are approved for refinancing, the lender will use the proceeds of the new loan to pay off your old loans, and you will receive a statement from the new lender. You will then be responsible for making your payments directly to that lender for the balance of the loan.
Consider Your Options
Refinancing can be a great option for anyone with private student loans with high interest rates or variable interest rates. Carefully consider your options before deciding to refinance your student loans, particularly if you plan to include your federal student loans in refinancing.