Reasons To Consider Refinancing Your Student Loans

Reasons To Consider Refinancing Your Student Loans Image via blog.denverpost.com The first thing to consider when refinancing your student loan is how much interest am I paying? If your interest rates are higher than 6.5 percent, then it would be smart to look into it. You have the potential to cut those rates in half. According to the washingtonpost.com, who interviewed a couple in debt for $300,000, “The Salvias refinanced their student loans this year through Citizens Bank, slashing their interest rates from about 6.75 percent to 2.35 percent, putting their student loan rate lower than their mortgage rate of 3.25 percent. Their monthly payments dropped by $700. The savings, the couple says, will go toward day care. However, new student loans are not just handed out another reason you have to consider. Secondly, a little thing called credit comes into play. Lenders are more likely to offer you a loan if they see you have a good credit score, a number between 690 and 850. As college students, it is expected that you have a not-so-great credit score. In this situation, a co-signer comes into play. This co-signer can be a parent or another adult who will take responsibility for the loan. According to usatoday.com, “Some lenders, including SoFi and Earnest, have been backing away from credit scores as a basis for evaluating potential customers. Your monthly cash flow, education and employment history are more telling, they say.” Having a stable income compared to your debt is also attractive to lenders. Naturally, if your income is significantly lower than your current debit, it is highly unlikely you will be able to refinance your loan. According to usatoday.com, “Lower your debt by throwing extra funds at your credit card balance, student loans and car loans. Credit card debt in particular can be a red flag for lenders, Passione says. But once it’s gone, you’ll likely have a better chance at a favorable interest rate when you refinance.” Passione, as mentioned above, is CEO and founder of LendKey, which is a refinancing lender. Image via startribune.com In addition to interest rate, credit score, and income, consider your ability to make monthly payments. Not only can your interest rate decrease, but so can the monthly repayment amount. Time period options vary from 5, 10, to 15 years, and so on. For example, changing a 10-year loan to a 20-year loan will drop your payments considerably. Studentloanhero.com suggests: “although your monthly payments will drop, be careful as you might accrue more interest and end up paying more over the long haul.” Furthermore, consider looking for a more flexible repayment plan. Chances are there is one out there that suits your situation better. Compared to a federal loan, private banks offer limited programs. A federal loan, according to studentloanhero.com, offers “great benefits such as Pay As You Earn, Income Based Repayment, and Income Contingent Repayment” Refinancing your student loan might also let you release your previous co-signer. Why is this something to think about though? Chances are that co-signer is one of your parents, and the money-stress between you two has been taking a toll on the family dynamic. On the plus side, without your loan bringing down their credit score, your parents can then invest in a big purchase like a new car or a beach house. And that can benefit you too. Switching to a new bank can also be a reason why you are considering a new student loan. Some banks just do not offer the service some people would like, and there is no problem for changing banks because of this. According to studentloanhero.com, “Refinancing your student loans gives you the opportunity to switch to a new bank that has a great customer service record and better track record working with student loan borrowers. So there you have it. Refinancing a student loan can really ease up the stress in your life after college. Whether the reason is interest rates or monthly payments, there are many reasons why you should consider refinancing your student loan.