Are you worried about paying higher-than-average interest rates on your student loan? Are monthly loan payments stretching your budget too thin? Concerns about repaying your student loans can be a major source of stress, no matter how much money you owe. But there’s also some good news – you might be able to reduce your monthly payments by refinancing your student loans.
Unsure if refinancing is the right option for you? Here are a few important points to consider:
When considering whether or not to refinance your student loans, first be clear about your short- and long-term financial goals – because different refinancing options can offer different benefits. If your goal is more money in your pocket now, look for refinancing terms that reduce your monthly payments. If you’re concerned that your interest rate is higher than average, you may be able to refinance and lock in a lower interest rate. Or, if you’re financially stable and eager to shed some debt, find a refinancing plan that lets you pay off your debt at a faster rate.
Interest Rates and Origination Fees
The higher your interest rate, the more you will benefit from refinancing to a lower rate. Determine your current interest rate, and speak with a loan officer about what interest rate and pay-off amount – that’s the total balance of what you owe – you could get by refinancing. Some lenders have origination fees, but the good news is many do not, including HUECU. Most often, a fee is not worth paying if you plan to pay off your loan over a short period of time.
It's important to choose a refinancing option that allows you to manage not only your monthly payments, but also your overall financial health. If you have high student loan balances, you may want to consider a longer repayment period to keep monthly payments manageable. If your balance is less, a shorter repayment term could mean more money out-of-pocket every month, but less interest paid in the long run.
What Do Lenders Look For?
When approaching lenders about refinancing, be aware that they will be more likely to refinance your loans and help you get a good interest rate if your financial health is in good shape. If you have a healthy credit score, hold an undergraduate or graduate degree, and are bringing in an income of at least $24,000, you’re probably a good candidate for refinancing. Alternatively, you can ask a financially healthy co-signer to help you refinance.
If you’re not sure whether refinancing if right for you, try this – subtract your basic living expenses (such as rent and food) from your monthly income. That figure is your discretionary income. Traditionally, 10 percent of your discretionary income is an appropriate monthly loan payment. If you are paying more than 10 percent of your discretionary income in student loan payments, look into refinancing.
Keep in Mind
If you refinance with a private lender and give up your federal student loans, you give up some protections offered by the federal government, such as loan forgiveness and deferment programs. Check with private lenders before refinancing to find out if they offer any kind of grace periods, alternative payment plans or flexible payment options.
Whatever your financial needs, there’s a good chance that student loan refinancing could help. Do your research, speak with a trusted loan officer, and don’t be afraid to take charge of your student loan debt.