If you are in debt for student loans, there may be a time when it is difficult to move forward. You make payments, but a lot of them don’t even affect the payer. Perpetrator? Your interest rates. How do I refinance my student loans?
What is student loan refinancing?
You’ve probably heard that you can save money by refinancing a car loan or mortgage. You can also refinance and consolidate student loans, which will save you money on interest and make payments easier to manage. And by shaving a few percentage points, you can save thousands of dollars and get out of debt faster. Sounds inviting, right?
While there are cost saving benefits, this can be a risky move, especially for federal borrowers.
Risk of refinancing federal student loans
Before refinancing federal student loans with a private lender, you should compare the savings you achieve with the value of the following federal borrower benefits that private lenders usually can’t match. Here are some threats:
- Loss of access to income-dependent repayments
- There is no potential loan cancellation
- No interest-free payments during deferment or forbearance
- Limited loan withdrawal options
- Compare refinancing student loans from lenders
When you qualify for a loan, you provide basic information about yourself and you go through a soft credit inquiry that does not appear in your credit report and does not affect your creditworthiness. Based on this information, the lender will confirm whether you are likely to be approved and if you are good the candidate, give you the estimated rates and conditions you can expect.
When evaluating offers, consider the following factors:
- Interest rates: Your interest rate will affect the amount you pay for the entire loan period. Because paying less interest is the reason why many borrowers decide to refinance, give priority to lenders who offer the lowest rates.
- Types of interest rates: Refinancing lenders usually offer fixed and floating interest rates. Fixed interest rates remain the same throughout the life of the loan, and variable interest rates can change depending on market conditions.
- Loan terms: Lenders offer a number of repayment periods. Depending on the lender, you can usually choose between five and 20 years. A shorter loan period may not lead to the lowest monthly installment, but you will save more interest if you choose the shortest period you can afford.
- Forbearance options: Forbearance policies can vary considerably between lenders, and private lenders are not required to offer the generous payment reduction options that federal loans provide.
- Release rules for signers: Some lenders allow lenders to release the signer from the loan after a certain number of timely payments.