We all remember that sense of accomplishment and relief when we finally finished our college education. No more exams and no more commutes to campus. With a degree in hand, you walk confidently into the real world. It’s at this point that the student loan payments kick in. Suddenly you’re required to start paying back all of the money you borrowed during your time in school.
Some people put their heads down and work tirelessly to pay off the debt. Others struggle each month to make their monthly payments. In other cases, the monthly payments aren’t an issue, but the interest is killing you as you try to pay down the principal amount. If you fall into one of the last two categories, refinancing could be the right decision for you, but how do you know? Let’s find out how you can decide if this solution is right for your situation.
Weighing The Pros and Cons of Refinancing
The processing of refinancing involves finding a lender to take on a single loan or loans and restructure them for you on better terms. This could be a lower interest rate, lower payments, or a different repayment schedule. In some cases, it can also relieve any cosigners of responsibility on the loan.
When you’re trying to decide if it’s time to refinance, you should first look at the monthly payments you’re making. You should also examine the interest rate to see how much additional your paying each month and overall.
Here are some pros and cons involved with the decision to refinance:
Lower Payments (Pro): you could have lower monthly payments after restructuring your loans. Refinancing in general can offer a lower interest rate. If your credit score has improved since your first took out the loan, this can also factor into a lower rate for you. If you decide to extend the repayment period, this will also lower the monthly payments
No Federal Benefits (Con): Refinancing is best done with private loans, as federal ones do have options for people who are struggling. If you refinance your federal loans, you will lose these options. Federal loans often qualify for loan forgiveness and Income-based Repayment (IBR) plans that can help lower your payments are cancel out the loans completely.
One Simple Payment (Pro): If you have multiple loans, it can be difficult to track all of the individual payments. Refinancing offers the option to consolidate your loans into one single payment each month.
No Grace Period (Con): Many student loans will allow you to make payments after you graduate, or only pay the interest while you’re enrolled. These kinds of perks are not an option when you refinance. Instead, the payments will begin immediately. In a situation like this, you should wait to refinance until after you’ve completed your degree.
Repayment Options (Pro): When you’re working with a private lender, in many cases you will be able to choose your repayment options. You can decide how long you want to make payments, for example. You can also choose between fixed or variable rates.
How to Decide if Refinancing is Right For You (Infographic)
When you boil it all down, refinancing has the potential to save you a lot of money over the long-term. This savings is ripe for a Roth IRA or any other form of retirement savings.
If you’re struggling at all with your student loan payments, it may be time to start considering your options. You should first think about what you want to accomplish when you refinance. This will help you narrow down and decide on the right private lender to refinance with.
Take a look at the infographic below from Credible.com. It will help you navigate the roadmap between you and your financial future. Refinancing is not for everyone, but it could very easily change your entire financial outlook.
Keep in mind that, even if you’re comfortable making monthly payments, refinancing can offer lower interest rates. These will allow you to put more of your payments towards the principal and ultimately pay off the loan faster as a result.
Taking Control of Your Student Loans
The idea of refinancing may seem difficult or daunting, but it’s actually quite easy. Private lenders are more than happy to work with you to provide the best possible rates and payment options.
Do you have student loan debt? How do you plan to take care of it? Let us know in the comments!