Refinance Your Student Loan Online
Borrowers refinance or consolidate their debt in general to get lower payments, rid themselves of variable interest rates and reduce the interest they pay.
For graduates of four-year colleges, law schools, medical schools and other higher-learning institutions, this happens through refinancing a single loan or through consolidating, or combining, multiple student loans. Whether you refinance a single loan or consolidate more than one, you usually find another lender to pay off the current loans.
Why Refinance Student Loans
Refinancing student debt can lower the monthly payments and even the amount of interest you pay throughout the life of a loan. Using a student loan calculator, you can estimate your savings from refinancing your student loans.
Refinancing helps you manage household and personal finances beyond lowering interest costs. You may need more time to pay off the student loans. Depending on the lender, your student loan repayment period lasts as little as 10 years or as much as 25. Refinanced or consolidated loans may carry maturity dates as much as 30 years out. With longer loans you get lower payments as well as more time to repay, but the prospect of paying more interest in total appears.
By combining loans, you have one creditor, one due date and one balance to track. This promotes easier scheduling of payments and management of your overall debt. You’re less likely to miss payments and face the associated consequences of collection letters and damage to your credit score.
Doesn’t the Federal Government Offer Student Loan Consolidation?
Yes, but there are strings and less benefits than with our loan refinancing. Initially, you do not qualify for the government’s Direct Student Loan Consolidation program unless all of the loans are federal loans.
Even if you qualify, Direct Student Loan Consolidation does not necessarily equate to savings. Your consolidated loan has as its interest rate the weighted average of the loans you are consolidating. Thus, you don’t get a lower rate through the direct program. To get a better rate and lower monthly payments, you must opt for a longer loan term. This can mean more total interest.
When you refinance, you deal with a private lender rather than through a federal program. Depending on your occupation, you lose certain opportunities at having your loan forgiven. Under the Public Service Loan Forgiveness Program, the federal government cancels debt payments for full-time employees of 501(c)(3) non-profits or federal, state or local governments. If you fall in this category, you must have 120 on-time payments. For teachers who work full-time in low income schools for five straight years, the Teacher Loan Forgiveness Program eliminates future debt payments.
When you refinance or consolidate with a private lender, you might not get relief for a financial hardship. Federal programs make such help available to you. Should you have a hardship as defined by the Pay As You Earn program, your payments are established at 10 percent of your annual income divided by 12 months. Other income-based repayment plans set the monthly payments at 10 percent of income divided by 12 for new borrowers, or 15 percent if you’re already a student loan debtor.
Some private lenders assist those student loan debtors who face financial difficulties. EDU Loan Aid customers can have payments delayed during job losses and get help finding a new job.
If you are able to participate in the Direct Student Loan Consolidation program, you will not undergo a credit check. By contrast, your credit history factors into the ability to refinance through a private lender. Credit checks will reveal whether you have paid, not only your student loans, but credit card, car loan, mortgage and other debt payments on time. Having a high credit utilization rate (total balances divided by total credit limits) can signal that you may rely too much on credit for purchases or meeting household or personal expenses.
While refinancing your student loans may help, the fact that you are considering this option may prompt you to evaluate your personal financial practices. Find unnecessary expenses to eliminate or cheaper alternatives to entertainment or dining. Luxury purchases or extended-travel vacations might need to wait as you get your student loan and other debt under control.