Why You Should Refinance Your Student Loans
College education does not come cheap and many graduates leave the university armed with a diploma and owing thousands of dollars in student loans
. When it's time to start paying these loans back, you may not know where to begin. It may be a good idea to refinance your student loans to simplify your payments and save on interest.
When you leave college, you may have a variety of loans at different interest rates. Paying off these loans individually can be confusing and time-consuming. It is possible that refinancing them will help you save hundreds of dollars by bringing down the interest rates of at least some of them. This will lower your monthly payments and save you money.
Before deciding on a debt consolidation loan, there are a few things you have to consider. Keep in mind that bank and federal loans have very different terms. Think about the advantages and disadvantages of debt consolidation before making a final decision.
When you consolidate your loan debts, you are putting all your different loans under a single private loan. Thus, you only have to make one repayment each month. By turning a federal debt into a private loan, you can no longer qualify for debt forgiveness, forbearance or deferment. These options are usually provided with federal loans to avoid default.
Debt consolidation may be the right option if the student debts are mostly from financial institutions and not from the federal government. The interest rate on a private loan is normally higher than on a federal Stafford or Perkins loan. However, if the interest rate of the consolidated student loan is low, refinancing will make monthly payments more affordable. Refinancing student loans also means that you only make a single payment to the lender. It will be easier to remember to make the payment and there will be fewer late payment charges.
You will be able to reduce your monthly payments if you refinance your student loans. Federal loans typically have a term of 10 years. When your loans are consolidated, you may be able to extend the term up to 30 years. Monthly repayments will become more affordable, although the accumulated interest paid will increase. It will also take longer to pay off the loan.
Although refinancing offers a number of benefits, you must think twice before converting Perkins and Stafford loans into a private bank loan. The interest rate will be higher and you will lose certain benefits and features designed to help financially strapped borrowers. On the other hand, people with a higher proportion of privately financed student loans will have a lot to gain. Think carefully before you decide to refinance your student loans.
Why You Should Refinance Your Student Loans
By: George Nowling
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