Student Loan Refinancing
In 2016, educational loan debt in the US amounted to more than $1.3 trillion and it exceeded the credit card debt. As compared to 2016, an additional 17% of borrowers defaulted on their federal education loans. Borrowers can opt for student loan refinancing, with variable interest rates of 2.58 percent APR, to alleviate the burden of student loan repayments.
Refinancing of student loans is a type of debt relief which can assist in easing the debt load burden and offer solutions to multiple problems that make it hard to pay off the loans. People with tight finances and student loan debt can opt for student loan refinancing to get lower interest rates, consolidate different loans, repay loans quicker, and reduce the monthly repayments.
Individuals with many student loans with varied rates of interest can opt for refinancing and consolidate of all the loans into one single loan with a single rate of interest. Also, it can be hard to handle and keep up with several student loan payments, particularly in case of several different lenders. It may also be noted that some providers of student loans sell or buy loans, which means that borrowers may end up making payments to lenders other than the lenders that they first used to take out a loan.
Student loans refinancing can permit borrowers to gather all their education loans into one area for better organization and better tracking of the progress of repayments.
How does it work?
Private student loans as well as federal student loans can be refinanced via private lenders such as banks or other financial companies. Refinancing of the student loans will help combine all the different loans into a single loan with just one payment every month. The interest rate on such a consolidated refinanced loan will be determined by the credit score. Hence, ensure that the credit score is high before applying for student loan refinancing so as to get the lowest interest rate available.
Borrowers who want to avail the benefits of loan forgiveness federal programs should not opt for refinancing of their federal student loans. Refinancing them will result in disqualification from any federal forgiveness plans. People who do not meet the eligibility criteria for such forgiveness programs should opt for refinancing as it is the best way to reduce the monthly payments.
Individuals with a Masters, Bachelors, or a PhD are all eligible for student loan refinancing. Lenders normally deal with borrowers who are employed and have good credit. The documents that you will need to provide include a pay stub, a photo of your driver’s license, and a screenshot of the ongoing student loans.
Who should opt for student loan refinancing?
Individuals may think about refinancing their student loans in the following cases:
- If you have a stable job and are financially secure
- If you can avail of a lower sum of total interest paid over the loan’s tenure
- If the student loan has a very high rate of interest; this is often the case with private student loans
- If you want to pay off the debt at the earliest
Individuals may avoid refinancing in the following cases:
- If you plan to opt for federal loan forgiveness
- If you are in a situation of unstable job and income
- If you are approaching the end of student loan repayment
- If you want to opt for an income-linked repayment option in the future