Refinancing a Student Loan – Be Aware

5 Steps to Consider Before Refinancing a Student Loan

Refinancing a student loanPinIn other articles, I have discussed the cost and debt implications of having a student loan.  With the rising cost of college tuition, many young adults are getting in over their head and looking for answers once they graduate.  Refinancing a student loan can give you lower monthly payments and allow you to build more savings or pay current debts off.

It‘s important to first ask yourself the ever important question of why you want to refinance your student loan.  If you have a fixed rate Un-subsidized Stafford Loan, which is the most common type of federal loan for students, you need to be aware that interest rates for these loans have not changed.

Many refinancing options will switch you from a fixed rate loan to a variable rate loan.  This means that the monthly payments on your loan may be smaller when you first refinance but could increase significantly over time. A variable rate loan could end up putting you in a worse position down the road.

You may lose some perks in having a Federal Student Loan by refinancing a student loan.  If you can’t make your payments because you don’t have a job, the payments can be deferred for a period of time, or you may qualify for a reduced monthly payment based on your current income.  Certain professions can qualify for public service loan forgiveness, where the government will discharge part of or your entire loan.

If you have good credit, a stable career, a strong emergency savings account, and decide that refinancing a student loan makes sense, here are 5 steps to consider:

  1. You must be already out of school in order to qualify for a refinance.
  2. Know how much of a monthly payment you can afford.  This will help you find the right loan for your situation.
  3. Decide if you simply need smaller monthly payments or a longer repayment term.
  4. If you have several loans, Federal and private, consider refinancing (instead of consolidating) just the private loans and leave the federal loans in place for the perks.
  5. Shop around.  Avoid the bigger banks and look into credit unions and even your current private loan lender to see if they will consider lowering your interest rate.

Whatever you do, make sure you understand all of the terms and conditions that apply to your current loan clearly before signing on the dotted line.  It’s not a bad idea to speak with your college counselor and even a financial planner to make sure refinancing a student loan is truly in your best interest. Don’t commit to any deal until you know it’s the right move for you.

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6 responses to “Refinancing a Student Loan – Be Aware”

  1. lananana says:

    This is good advice, I have found that sometimes it is better to leave well enough alone, generally a government loan will have the best rate.

  2. Mike D. says:

    It’s definitely wise to look over any decision from every angle and gather all information you can before making the final move.

  3. Ed says:

    I am lucky enough to be past those years but I still found the post helpful. I hadn’t realized that there are pitfalls involved when refinancing student loans. These kind of things should have protective measures for the students themselves, not just for the lenders. Many people who take out student loans are young and fairly naive, they might fall into some the of lender traps out there.

  4. Philip Townsend says:

    Im lucky in that I decided not to continue getting student loans because I was able to get grants. I can’t have that much debt.

    • Gust Lenglet says:

      You’re very fortunate to be able to get those grants. So many students can’t, and they are burdened with student loans for many years.

  5. Donald Quixote says:

    I’m one that not only hates debt, but kind of fear it as well. I have already received a student loan, so I’m definitely in the boat of keeping up and not trying to catch up.

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