Refinance Your Student Loans: When Is It Time To Refinance?
Paying off your student loan debt can feel like a hamster wheel at times. You are making your monthly payments, but it’s tough to get ahead. If you’re in a position where a significant portion of your payment isn’t even touching the principal, you may want to have a look at your interest rates. A good solution for you may be refinancing.
Refinancing your student loans essentially means transferring your existing loan or loans to a new one. While this may seem counter-productive, the goal is to get you into a more manageable payment situation, shorten your loan terms, and save you money.
But how do you know if it’s time to refinance?
The main reasons people want to refinance are:
- Getting a lower interest rate.
- A more flexible payment plan or easier loan management.
- Reducing the amount you pay each month.
- Switching to a different lender.
- Eliminating a cosigner from your student loan.
Keep reading to find out how each factor could impact your personal situation.
Getting a Lower Interest Rate with Refinancing.
If you have different types of loans, or loans from a variety of places, chances are you are managing different interest rates. In the same token, if you took out a loan before you were employed or didn’t have much credit in your history, you may be working with an interest rate that is much higher than you actually qualify for.
What this means is that you have tons of money going to the bank directly, versus going against the actual amount you borrowed.
Combining your existing loans into a new student loan gives you the opportunity to explore decreasing the amount of interest you are paying, and increasing the amount towards your principle. Better yet: increasing the amount in your bank account, sooner.
Flexible Payment Plan and Better Loan Management.
One of the biggest advantages to refinancing your student loans is moving all of your loans into one spot. This makes it so much easier to manage. You can also explore different payment plan options based on factors like your income, your financial health; credit score, payment history, assets, and type of loans you are consolidating.
Reducing the Amount You Pay Each Month.
If paying your student loan bill each month is forcing you into financial hardship in other departments, refinancing is a great way to explore freeing up some cashflow. While you may end up with a longer term, you will also likely end up with a lower interest rate.
Cutting your student loan repayment each month gives you an opportunity to work on your financial picture as well. You can start to manage your other bills more comfortably, or even start a savings plan. When asking borrowers what the biggest benefit to refinancing is, one of the most popular answers is, “Having money for other things.” Reducing your monthly payment amount is the biggest contributor to that.
Switching to a Different Lender.
While we encourage you to stick with lenders you have had a good experience with – as rapport and history is important to lenders – sometimes you just simply have a bad experience working with a company.
If this is the case, refinancing with a new lender is a great opportunity for a fresh start. When looking at your refinancing options we encourage you to explore applying with different lenders before signing on the dotted line. Knowing what each has to offer for your situation as it is right now is very important.
Perhaps when you initially applied for loans there were only one or two lenders that were willing to allow you to borrow. If you have taken steps to improve your financial picture in recent years, it’s possible that more lender opportunities are available – which could mean greater savings for you.
Eliminating a Cosigner From Your Student Loan.
When you headed off to college in your teens, getting approved for those loans solo may have been tricky. While your family member or close confidant may have been OK with attaching their name to your debt at the time for the sake of your education, now that you have graduated they are likely keen to pull themselves away from it all.
Refinancing your student loans is the best way to explore taking a cosigners name off of a loan, and also getting the best rate for yourself at the same time. It is possible that depending on your financial picture you may need a cosigner to refinance, in which case we suggest you weigh your options closely.
But if you are able to land a refinanced loan without anyone’s name attached to it, it will help your credit score in the long run and allow your cosigner to feel free of debt that isn’t theirs. A win win.
- Check your eligibility in just 2 minutes with our mobile app
- 9 month grace period (3 months more than most lenders)
- Skip a payment once per year (once repayment period has restarted)
- Covers up to 100% of school's certified cost of attendance
- Pick the in-school payment option that fits your budget