Refinancing student loans has been a consideration of many people who would like the best possible deal to pay them off after graduation. This process has both advantages and disadvantages, which will greatly depend on your personal situation. Your long-term projects, current financial standing, and other monthly expenses will influence whether that’s right for you. Ultimately, it’s worth researching the options and receiving rate quotes from private lenders to see if you both qualify and would benefit from refinancing.
How to check if refinancing is right for you
The first step in deciding whether or not to refinance is to see if you would save enough interest to see a difference. You can do this by using a student loan refinance calculator, entering your current financial information and comparing it to a hypothetical cost you would assume by refinancing. These calculators can usually be found on the websites of private lenders, including leading lenders such as SoFi and Earnest. Some private lender sites will ask you to pre-submit before seeing possible numbers, but this will give you access to more information down the line.
Benefits of refinancing
If you’ve decided that the difference in interest is enough to consider refinancing, then you’ll want to consider the pros and cons of doing so. Of course, the biggest benefit is saving money on monthly repayments. By saving money, you can spend money on other living expenses, like a mortgage. Plus, refinancing with a private lender allows you to have a loan repayment plan that you actually want, leaving you with more options than a federal plan.
If you want to pay off your loan as quickly as possible, you can go for a short-term plan. You can also go for the long term if that is not a problem to achieve your future goals. Finally, your payments would be consolidated, which is a big plus if you currently owe several different student loans. Instead of having to follow a number of repayment and interest rate plans, you only have one payment to worry about.
Disadvantages of refinancing
The disadvantages are also worth thinking about. The most important thing is that you will lose all the protections that your federal student loan offers you. You will not be able to defer payments due to instability if you lose a job, for example. Your loan repayment time may be extended if you make much lower payments.
That means another twenty years of repayments, instead of just ten. Finally, the eligibility requirements for obtaining a refinanced loan from a lender tend to be more stringent than with federal loans. You need to have a certain credit score, with most private lenders starting at 650. Plus, if you apply for a refinanced loan and are rejected, your credit could suffer as well.