How to Refinance Your Student Loans

Student Loan Refinance Rate

How to Refinance Your Student Loans 

With student debt hovering at about $25,000 on average and finding a job out of college increasingly difficult, many students are looking for a way to refinance their student loans. It is important to be careful when you refinance. Some deals will allow you to lower your overall student loan debt, while others will lower your monthly payments, but at the price of adding thousands of dollars in interest costs as you slowly pay off your loans. Here are some tips to help you find the best possible refinancing deal.

Find out if you have private or federal loans, or a bit of each

Private loans typically have higher interest rates and are more difficult to refinance or consolidate. Student loans are no longer dischargeable if you file for bankruptcy. This does not give you much leverage when approaching private banks.

If you have federal loans, look into an “Income-Based Repayment Plan.”

This is a great option for students with federal student loan debt. If you can prove you are going through a financial hardship you may be able to qualify for a federal IBR. In this plan your monthly due balance will be only 15% of your discretionary income per month. For a single person making $25,000 a year the most you will ever have to pay is $108, no matter how much your loan balance. Even better, the federal government will pay your loan interest for up to three consecutive years!

Figure out your leverage

A large percentage of students default on their loans. If you have good credit and have been making payments in a timely manner, you have better leverage with a private lender. Banks just want their money, and if they know you are going to pay them back you will have an easier time getting a better deal.

Check with local banks for a better rate

Smaller community banks often offer better rates on student loans. Their refinancing may save you a lot of money by giving you a lower interest rate than many other private letters. However, that isn’t the only benefit. If something happens or you’re going through a hard time, community banks are for more likely to work with you to find a solution. It is a big relief being able to go in to talk to someone who knows your name rather than try to hash it out with an unknown person in a call center half a continent away.

If all else fails, consolidate

Consolidation is a common form of refinancing, but it does have some serious downsides. By consolidating your debt you will be able to turn payments on multiple loans from multiple years into a single, much lower, payment. This is great news if you are struggling to pay your bills, but unlike other options it does not actually lower your interest rates or the original balance you are responsible for. Though lowering payments for a short while can be a relief, the mounting interest will more than cancel out any money you save.

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