As you’re probably aware, the Coronavirus outbreak has caused a lot of implications across our nation and it’s not stopping there. The ripple effect seems to have no end in sight and our economy that was once booming is now falling to pieces. So why would right now be the time to refinance your student loans?
There’s a lot of important facts to take note of here but allow me to let you in on the two that could make a big difference for you:
- Many people are facing job loss and lower incomes, and that’s just the tip of the iceberg.
- The Federal Reserve cut interest rates to nearly zero on March 15, 2020.
To say we are in a time of complete and utter despair is quite an understatement, but we are not totally doomed in the decisions we do have.
In fact, now more than ever do we have the opportunity to change our financial situation to reflect a more stable future and more control over our bank accounts.
You might be saying, “but I just lost my job, how is that even possible.”
But let me help you create a new truth around your new reality.
And it starts with telling you that you do have control. So long as you want to take your control back.
We have done the research to come up with the best lenders for 2020. Check them out below and follow the links to each individual lender to find out if they’re the right match for you should you choose to refinance your student loans.
Why refinancing your student loans during the Coronavirus crisis is a smart move
You’re probably wondering why right now is a good time to make a big financial decision that affects your future finances, not just your situation right now.
For starters, in an emergency situation, the Federal Reserve has cut short-term interest rates, particularly on student loan debt.
Rates for student loans could fall by 2.5 percentage points falling just below 2% which would be an all-time low.
An opportunity like this doesn’t happen often, and though rates have been considerably low
This is especially good for those who hold higher interest student loan debt, because of the opportunity to refinance at a significantly lower rate.
Just to be clear, refinancing might not be good for everyone. If you have a low credit score, recently went bankrupt, or if you don’t have at least one steady income this might not be beneficial. Your financial future is dependent on what you’re comfortable with and though the time might feel right with such low rates, don’t feel pressured to do something that doesn’t feel safe.
How can refinancing your student loans help you if you lost your job or lowered your income?
Refinancing your student loans can be incredibly beneficial for lowering your payments and making paying your loans easier by moving them all to one payment with one interest rate.
When refinancing your student loans, there are a few things you will need to consider:
- Do you have a great/excellent credit score? You’ll need a credit score upwards of 600 to be considered for approval to refinance your loans. The better your credit score, the better interest rate you’ll be offered.
- Do you have multiple private loans with multiple interest rates that are high?
- Do you have any federal student loan debt? And if you do, do you plan on using the benefits that come with those federal student loans such as income-driven payments, forbearance and deferment, or our favorite, loan forgiveness?
Note: If you want to take advantage of federal student loan benefits, then refinancing your student loans is not the avenue you should pursue. We outline other options for you during this difficult time if this is your circumstance.
Those who might still be interested in refinancing their federal loans may still want to wait. Unlike private student loans, during unemployment, federal loans offer the option to temporarily suspend payments and interest accruals for up to three years. This is quite different from the much more rigid terms that are outlined by private lenders.
When considering refinancing your student loans, you must look at the big picture of your financial situation.
Sometimes just lowering your payments month over month sounds great on paper, but can actually be less beneficial than using the benefits of your federal student loans or even asking your private lenders what their terms are as far as unemployment payment suspensions or lower payment options.
Get the full picture of your financial health before you decide to refinance your loans.
Use our calculator to determine what your new payments would look like when you refinance your student loans.
How low are interest rates for student loan refinancing expected to go?
Fixed rates on private loans are expected to fall as low as 2.8% for borrowers with excellent credit scores over the course of the next 3 months.
Variable rates could fall even lower than that for those with excellent credit history. (WSJ)
With any financial decision, shopping around for the right lender is essential. You want to make sure that you make a choice that reflects the best option for you and your finances. There are many lenders in the student loan refinancing space that all have something different to offer.
So why should I refinance my student loans during the Coronavirus crisis?
Refinancing your student loans can have many benefits:
- If you have private student loan debt, you can take advantage of the incredibly low-interest rates, significantly cutting the amount of interest you’ll be paying down and ultimately lowering your payment. Especially if you have a credit score that is much higher than it was when you initially took out the loan, which in the case of student loans, is highly likely.
- Consolidating multiple loans into one easy payment. Putting your payments all in one place can be beneficial for coordinating where your money is going, especially during a time of crisis where you need to spend your time budgeting your money and not worrying if you’re making all your payments on time.
- For private student loans, there’s no penalty for refinancing your student loans. Just be wary of comparing lender options and do this slowly over a 2 week period to avoid major hits when your credit score is run.
- Taking advantage of such low fixed rates could help your financial situation for years down the line. Proceed with caution if deciding to choose a variable interest rate during this time, when the economy recovers these are likely to reset and throw a wrench in your plans to pay back your loan.
- During such times of intense competition amongst all the lenders, you can refinance your loans with a company that offers better benefits during tough times such as unemployment.
Be sure to find a lender that clearly outlines their conditions in a contract so there is nothing to be left to the imagination. These benefits won’t be as flexible and federal student loan benefits, but it could provide you some relief if you need to find another job in the coming months.
Whatever your decision might be, choosing to refinance your student loans can be a time to reclaim your financial situation. It can be extremely liberating to put all your debt in one place, especially with the lowest interest rates we may ever see.
Consider your financial situation carefully, and if refinancing turns out to be the choice you make, there’s truly no better time than right now.