If you’re having a difficult time paying off your student loans, you might want to consider refinancing them. Refinancing your student loans can lower your APR and help you save money. Here’s how to refinance your student debt at a lower interest rate so that you can pay off your student loans.
How to Refinance Student Loans
When you refinance your student loans, pay attention to the terms of the loan. Try to find an option with a lower interest rate that has a fixed rate because it can save you money over the life of the loan.
If you have an above-average credit score and good payment history, then the refinance process should be fairly straightforward to complete. You can contact your bank to see if it offers a refinancing option for student loans. You can also look online for options.
Research lenders before you take out a loan from them, and do the following:
- Compare loan terms between different lenders to find the best deal.
- Consider the tax consequences because you might not be able to claim student loan interest anymore if you change the type of loan you have.
- Look carefully at the annual percentage rate on the loan to calculate the interest.
- Look past the special offers that might come with refinancing and review the actual terms of the loan.
If you lower your monthly payment, the loan could take longer to pay off, and you might increase the amount you pay in interest over time. Look at the full pay-off timeline, also called the amortization schedule, to see what the full cost of your refinanced loan will be.
Benefits of Refinancing Your Student Loans
When you’re considering refinancing your student loans, you should focus primarily on refinancing your private student loans. Some private student loans have a variable interest rate of greater than 18 percent. If you attended graduate school, you might have needed to take out the private student loans with a cosigner to qualify.
Some of the possible benefits of refinancing include:
- Locking in a fixed interest rate
- Lowering your monthly payment
- Releasing the cosigner from your student loan
- Finding a lower interest rate
Drawbacks of Refinancing Your Student Loans
If you have federal student loans from your undergraduate studies, you might not want to refinance them. Federal student loans have easier payback terms and income-based repayments that can make paying back your loan easier. If you refinance federal student loans through a private lender, you could lose those benefits.
Some of the possible drawbacks of refinancing include:
- Losing federal student loan repayment benefits
- Having to switch from a fixed interest rate to a variable interest rate
- Forgoing federal student loan forgiveness options
Student Loan Consolidation vs. Student Loan Refinancing
Student loan consolidation and student loan refinancing are different options for tackling student loan debt. When you consolidate student loans, you bring the money owed across several loans into one loan so that you only need to make one payment. Federal student loan consolidation can be effective if you want to make one monthly payment instead of several different payments at different interest rates.
When you refinance student loans, you shop for a lower interest rate and try to lock in a fixed rate, which can help you save money on interest over the life of the loan. You should avoid consolidating federal student loans and private student loans into the same private loan because you might lose some of the repayment and tax benefits associated with federal student loans.