Are you one of the nearly 45 million U.S. adults currently carrying student loans? If so, you’re likely looking for a way to make them more affordable. Refinancing is one way to accomplish this. These are some things to consider before refinancing a student loan.

What Is Refinancing a Student Loan?

Refinancing is a popular form of consumer loan restructuring. So, what is refinancing a student loan? Just like with any kind of refinancing arrangement, refinancing a student loan entails applying for and taking out a new loan to pay off and replace your current one. As we’ll see in the next section, there are some substantial incentives for doing this.

Considering the high amount of student debt out there today, individuals should always be looking for ways to improve their status. It’s possible to accomplish this through a student loan refinance.

 What Are the Benefits of Refinancing Student Loans?

There are a few main functions of a student loan refinance. All, however, are driven by a singular focus: to get a loan that better suits your current financial situation. These are a few of the benefits of refinancing student loans that help accomplish this main goal:

  • You can lower your interest rate – Interest rates are just about the most important feature of debt. A high or low-interest rate is going to make a massive difference in determining how much you’ll be required to repay over the course of a loan. Obviously, you’ll want to minimize the amount you pay back as much as possible. To do this, you can refinance to a student loan with a lower interest rate. Just make sure you understand the nuances between fixed and variable interest rates when you do this. While variable rates are typically quoted lower than fixed ones, this is because they can rise or fall over time based on market conditions.
  • You can change the repayment term – The term of your student loans can have a substantial impact on the amount you’re paying each month. Those who are tight on funds can refinance to a loan with a longer duration, which will spread repayment out over a longer period of time.
  • It costs nothing to refinance – Those who are familiar with refinancing other types of debt will know that doing so typically comes with a loan origination fee. This is essentially an upfront cost you have to pay in order to get a new loan. This can often be thousands of dollars depending on the loan. Those who originally took out federal student loans had to pay an origination fee. With student loan refinances, however, there are no origination fees. This can make a refinance an even stronger financial decision.

As you can see, there are many benefits to refinancing student loans. But these aren’t the only things you need to know about the process.

What Are Some Additional Considerations to Make Before Refinancing Student Loans?

Student loan refinancing can help get you to a better financial position. At the same time, the process of refinancing your student loans comes with a few oddities that are essential to understand before proceeding.

The most important thing for anyone to consider before refinancing student loans is if they need to hold onto their federal loan benefits. Federal loans work a bit differently than private ones. While you can consolidate federal loans, a student loan refinance must be done through a private lender. Due to this, those who refinance are at risk of losing key federal student loan benefits, such as income-driven repayment plans or possible loan forgiveness. Those who plan to utilize these federal loan features at some point should hold onto their loans instead of refinancing.

Another essential consideration to refinancing student loans that’s a bit different than getting an initial federal student loan is the importance of your credit score. When you work with a private lender, they’re going to want to see you meet a certain credit threshold. Failing to meet this level doesn’t mean you can’t refinance; it just means you’ll probably have to find a co-signer.

There’s a lot to learn before you refinance your student loans. Generally speaking, those who really need to hold onto their federal loan benefits should stray away from refinancing, while those who just want to get better rates and terms can be more aggressive with refinancing their student loans. Knowing your situation will allow you to make an educated decision.

Previous articleGovernment Debt Relief for Student Loans
Next articleKohli Steps Down as India’s Test Captain