There's a lot of ways to pay back your student loans, but what about student loan refinancing? Should you actually refinance your student loans? We dive deep into this topic and explore if it's the right option for you.
Student loans are growing and young Americans are drowning in a sea of debt exceeding $1 trillion. Why is it getting so bad? 18-29 year-olds find themselves borrowing money for their education and nearly 1 million student borrowers default payments each year, so most of that money is not being repaid.
Some student loan borrowers are seeing the benefits of refinancing their student loans. But how do you know if refinancing your student loans is the right move for you? This is a common question, especially as student loan debt rises among Americans who continue to make payments and feel no closer to having their debts paid.
So, what could the problem be? Most likely, it has to do with interest rates.
This would allow you to lower your interest rate, which can help save money and (hopefully!) become debt-free in a timely manner. Sounds perfect, doesn’t it? Even though there are cost-saving benefits, this strategy can be risky for federal student loan borrowers.
When should you refinance your student loans?
This depends on your situation. If you have student loans and want to save money on interest by refinancing, you need to first evaluate your current financial situation.
What benefits and protections would you lose by refinancing? Confirm that the pros outweigh the cons before jumping ship. These savings can be worth it for some borrowers, but not all.
Crunch numbers with this student loan refinance calculator and see what your savings could be. You should also research what protections you will lose to determine if it’s worth the risk.
If you have private student loans, then student loan refinancing probably makes sense. Private student loans are more likely to have higher interest rates and don’t qualify for student loan forgiveness or the federal repayment plan.
For borrowers who have a steady job, heavy cash reserves, and can pay off their debt in a short period of time - refinancing may make more sense because lower interest payments mean paying off debt faster.
These plans are meant to help you pay off your student loans depending on your situation. For example, the IBR plan sets up a monthly payment plan based on your income. And if you’re a borrower who uses an income-driven plan to pay back federal student loans, you may also qualify for student loan forgiveness.
Of course, there are advantages and drawbacks to every program, so you should draft a pros and cons list of each one to determine your best option.
Our top refinancing offers are here to help you when and if you do decide to refinance your student loans.