As graduation season approaches, you may notice more and more ads promoting student loan refinancing. You may also be getting offers in the mail from companies offering to “lower your rate” on your student loans. What does all of this mean to you? If you have student loan debt, it’s important to know your options and understand the strategy that makes the most financial sense for you.
First, what exactly does “refinancing” mean? Refinancing typically means you are using a new loan to pay off an old loan with the goal of obtaining a more favorable interest rate and or term. The concept of refinancing is commonly used with home mortgages but can also be a great option to use for your student loans. We published an article titled “When to Consider Refinancing Student Loans” that will give you some additional insight into potential reasons you might look to refinance your student loans.
For now, let’s focus on who can benefit from refinancing student loans, what loans can be included, and things you need to be cautioned on before pursuing a refinance loan.
If your goal is to obtain a lower interest rate and ultimately lower the total repayment costs of your loans, then refinancing is worth exploring. This is especially true if you have older private loans that may have a high interest rate and you feel you may qualify for a lower interest rate now. Some consumers may also be looking to lower their overall monthly payment. This might occur from either a lower interest rate or by extending the term (or length of repayment) on the loan. Finally, if you have multiple loans with different lenders or servicers, refinancing could make your life more convenient by combining your loans into one, so you’ll only have to work with one entity for your student loans in the future.
Most companies offering student loan refinancing will allow you to include private loans, those made by a bank or other financial services provider, as well as federal loans (Direct Loans, Stafford Loans, Perkins Loans) you received to help fund your education. Your loans may also need to be in their grace period or in repayment to be included in a refinance loan. That simply means you might need to be out of school when you refinance those loans. As mentioned earlier, you can include multiple loans from a number of different loan holders. You’ll want to make sure you know all of the student loans you have and which company or organization is responsible for servicing those loans.
While refinancing might be an attractive option for you, there are some things you need to keep in mind and consider.
The bottom line is to do your research and understand what course of action will be best for you. Each person has unique circumstances and concerns, so refinancing may not always be best. You can learn more about refinance loans and other related articles by visiting U-fi.com.