If your student loan interest is piling up, you're probably asking yourself "Should I refinance my student loans?" Refinancing can definitely be helpful and save you a ton of money over time.
However, you must make sure you know what to expect.
You should consider refinancing your student loans if you find a lower interest rate.
But, it's not the best decision for everyone – especially those who may need to take advantage of federal student loan protections.
According to Forbes, there are over 45 million borrowers who collectively owe more than $1.5 trillion in student loan debt.
Whatever your case may be, we're hoping today's article will help you learn more about student loan refinancing.
Certainly, paying off student loans isn't fun. Especially when you're watching the student loan interest continue to increase.
There are ways to manage your student loans and make paying them easier and more affordable. If you're wondering how, read on.
Student loan refinancing – what does it mean?
Student loan refinancing is when you apply for a new loan that will be used to pay off all of your other student loans.
This is usually a great option to save on student loan interest if your credit score is better now than when you originally borrowed the loans.
Typically, it's a decision people make to get different repayment terms and a lower interest rate. In fact, refinancing can help you pay off your loans faster.
Ultimately, you can decide to refinance with the same lender you already have.
But, it's usually better to shop around or go to a different lender. Most importantly, make sure you get the best deal!
Another key point, you can refinance your private and federal loans together, but you can only get the new loan from a private lender.
By law, you're not allowed to refinance a loan from federal to federal. You can only take federal loans to a private lender or refinance private to private.
To emphasize, these points are critical to your final decision. And, we will discuss them in detail in the next section.
Student loan refinancing options
When it comes to your student loans, you can refinance or consolidate them.
Consolidation is a type of refinancing where you combine multiple existing loans into one. However, in this case, the interest rate doesn't always change.
So, you might have 7 different student loans from different lenders that you're trying to group into one loan so you can have one monthly payment.
Consolidating your loans will give you one big new loan that has paid off your 7 previous loans.
Important to realize, you're able to consolidate federal loans if you have more than one, which is a key difference from refinancing.
But, your interest rate will not change. You will receive a new fixed interest rate by averaging all of your rates from the previous loans.
Ultimately, the best reason to consolidate is to have easier management of one monthly payment.
When is the best time to refinance my student loans?
There are a few situations where you should consider refinancing. Here a few situations below:
- You want to have a fixed rate
- You have high-interest rate loans
- You want to combine your loans
- It will accelerate paying off your loans
The biggest reason to refinance is due to high interest rates. Refinancing your student loans can drop your rate and save you hundreds or thousands of dollars. Your rate can be as low as 3.20% when refinancing with a fixed rate. If your current interest rate is on the higher side, this is a great option.
Is there a bad time to refinance my student loans?
It's important to realize when you shouldn't refinance your student loans.
Student loan interest plays a key role in the decision. If your new interest rate offer isn't much lower than your current rate, then it's pointless to refinance.
By simply saving a fraction of a percent in interest isn't worth it.
Another key point, if you're close to paying off your student loans, it may be a bad time to refinance. You may not be paying a lot of interest if you have a small balance and only a few months remaining on your repayment.
Stay the course and get aggressive with knocking your loans out!
Lastly, the federal student loan programs may be helpful to you at some point.
So, if you're currently using the federal benefits, you would be giving up that option by refinancing your federal loans.
You would lose the option of grace periods, income-based repayment, and other benefits.
Should I refinance my student loans?
The short answer is yes if your situation is improved by refinancing. Be certain to keep in mind the key points we outlined above on the best time to refinance.
Above all, you want to make sure you're receiving a lower monthly payment, lower interest rate, and take advantage of one monthly payment to simplify your finances.
That is to say, companies such as LendKey (this is an affiliate link, and we highly recommend them), allow you to refinance your student loans.
Most importantly, you're able to save a lot of money by refinancing with a company such as LendKey. Especially if your interest rates are high.
The thing we love about LendKey is their high ratings and reviews from trusted clients.
LendKey can help you better manage your finances and save money over the life of your loan. There are no origination fees when you refinance your student loans through LendKey.
Keep in mind, most people will never qualify for student loan forgiveness programs as they may think. As of March 2020, 188,396 applications have been submitted.
Out of those applications, only 3,174 were actually approved. In addition, only 1,831 people were granted student loan forgiveness. That's only 1.3%!
We refinanced our student loans and it helped us save money right away.
What else would you like to know about student loan refinancing?