When people run into problems making loan payments, they often consider refinancing. When you refinance a loan, you change its terms to get a better interest rate, consolidate multiple loans, reduce monthly payments, or otherwise improve your repayment conditions.
Student loans can be tricky to refinance. Federal student loans cannot be refinanced per set, but you can change your repayment method to one that better suits your life. You can change the length of the repayment period, opt for graduated monthly payments, or sign up for a plan that bases payments on your income and family size.
You can consolidate your federal student loans through the federal government. By consolidating, all of your loans will be combined into one, meaning you will only owe one payment each month. This usually results in lower payment amounts, and you can enjoy the convenience of only having one lender and loan to deal with. Since you enter into a new repayment agreement when you consolidate, you could potentially end up paying more interest than you otherwise would have with a standard plan. Defaulted federal student loans are often eligible for consolidation after the borrower completes an agreed-upon satisfactory repayment plan, usually consisting of three consecutive, voluntary, full payments on time.
After you consolidate your federal student loans, you can choose from a variety of repayment options. As with regular federal student loans, repayment plans can range between ten and twenty-five years, with or without graduated payments. Depending on your financial situation, you might be able to base your monthly payments on your income.
Private student loans can be financed through private lenders such as banks, credit unions, and other non-government financial institutions. If you want to refinance these loans because you’re having problems making payments, investigate your credit rating first. Most institutions will look up your credit score as a predictor of whether or not you will keep your loan obligations. If you have little, nonexistent, or negative credit history, you might not be able to change your terms or secure a lower interest rate. One way to get around this is by having a cosigner. If your cosigner has better credit history than you do, you might be able to get better terms on your loan. Keep in mind that if you fail to repay your loan, your lender will go after your cosigner for repayment. Discuss all terms carefully before either of you agree to the loan.
You might consider consolidating if you have multiple private student loans. These cannot be consolidated with federal student loans because federal loans have locked interest rates. Many private lenders offer consolidation options that would leave you with a single loan and only one monthly payment. As with general refinancing, you might need a cosigner if you have poor credit history.
Some programs offer incentives to cosigners, like allowing them to leave the contract after you (the borrower) make full, regular, on-time payments for a certain period of time. Discuss your repayment plan carefully with your lender and cosigner before entering any agreements.