Debt is one of America’s greatest issues. Part of this gargantuan debt are student loans. Now, America is drowning in $1.5 trillion of student loan debt. That’s a record high and it’s value has been increasing and still continues to grow.
There are a number of ways on how you can get out of student loan debt. One of which is student loan refinancing. Much like student loan consolidation, you are acquiring a new loan to pay off your student loan debts.
However, with student loan refinancing, you are better able to save money. This is because the loan you get for refinancing is with a lower interest rate. The system is straightforward but here are some things you need to know if you want to refinance your student loan debt.
What is Student Loan Refinancing?
What student loan refinancing does is it consolidates all of your student loan debts into one huge loan. This means that instead of having to pay for different student loans each with different due dates, you just have to focus on one payment per month.
Student loan refinancing doesn’t stop there. The main point of refinancing your student loans is to have a lower interest rate. This means that all your loans don’t just get consolidated but you also get to pay less in interest rate.
That’s how you can save money with student loan refinancing. There are a couple of factors that determine how much you can save. According to moneyunder30, how much you can save depends on factors such as:
- Your existing loan balance/s and interest rate/s
- The interest rate at which you have refinanced
- The number of years it takes you to repay your refinance loan
- If you make early payments on your refinance loan
If you have a lower interest rate and if you pay much faster, you’ll pay much less interest. One of the tools you can use to know how much you can save is a student loan refinance calculator.
Student loan refinancing is one of the best ways to pay off student loans. While it does make paying off loans more convenient and at a lower interest rate, you first need to meet the requirements to be approved for student loan refinancing.
Things to Consider Before Refinancing Your Student Loans
Refinancing student loans has its pros and cons. While you can consolidate both federal and private loans with student loan refinancing, it consolidates them into a private loan. Having a private student loan won’t allow you the benefits that federal student loans have.
Here are the benefits of having a federal student loan:
- Income-driven repayment
- Loan forgiveness after 20 to 25 years of paying on-time under certain income-driven plans
- Public service loan forgiveness for those working in eligible public service jobs.
- Deferment and forbearance options – these allow you to stop paying temporarily when you’re experiencing financial difficulties.
Meanwhile, these are the benefits of having a private student loan:
- Can allow you to have a higher borrowing limit.
- Enables you to have a lower interest rate if you have excellent credit.
Moreover, federal student loans have fixed interest rates. Private student loans have variable interest rates. This means that the interest rates of private student loans increase as the federal interest rate increases.
There’s also the requirements to be approved for student loan refinance. It’s much like applying for a credit card or any loan. Here are what lenders will consider when you apply for student loan refinancing:
- Debt-to-income ratio
One of the reasons why you need to use a credit card is to build your credit score. With at least a 650 FICO score, you’ll be able to qualify with most lenders. Having a FICO score of 700 or even higher can allow you to get the best rates.
Improving Your Chance for Approval
There are a few things that you can do to improve your chances of getting approved. Here are but some of them:
- Have a good and steady source of income
- Build a good credit score
- Pay off your credit card debt
While using your credit card helps you build your credit score, there are more than a handful of ways on how using a credit card can be disastrous. Be sure to learn how and how not to use credit cards.
If you make a mistake, the security of your credit card can be compromised. If you are ready to refinance your student loans, compare rates and terms of different lenders. Look for those with the best loan rates.
Now that you know enough about student loan refinancing, decide to apply for it if it means getting a lower interest rate. A lot of people work all their lives just to pay off their student loans.
Student loan refinancing can be a way for you to get rid of all your student loan debt. Just be sure to know what you’re heading for and be responsible with paying on time. If you want consolidated loans with lower interest rates, student loan refinancing is for you.
Here’s a quote from Barbara Mikuski about student loans, “college is part of the American dream. It shouldn’t be part of a financial nightmare for families.”