In the United States, the average student loan debt of a recent graduate is $21,000. If you are among the millions of young Americans with student loan debt, it is important to know your options for refinancing your student loan.
WHAT DOES IT MEAN TO REFINANCE A STUDENT LOAN?
When you refinance a loan, you pay off the balance of one loan with another loan. Refinancing a loan is the best option when you are looking for a lower monthly payment on your loan. This is achieved by lowering the interest rate or by extending the repayment time on the loan. Lowering the interest rate will ultimately help you repay less, while extending the repayment time will cost you more in the long run.
What is the difference between refinancing and consolidating student loans? (see the detailed post to provide more answers)
HOW CAN I REFINANCE MY LOANS?
Unfortunately, many lenders are not willing to let you refinance on a student loan, since lowering your interest rate would not be profitable for them. However, don’t be daunted, as there may be ways to successfully and efficiently refinance your student loans.
1. Refinance your federal and private student loans separately. If you refinance your federal and private student loans together, you will end up with a much higher interest rate on your federal student loan debt. This is because federal student loans usually have an interest rate between 3.4% and 6.8%, whereas private loans have a much higher interest rate.
2. Check your credit score! There are many websites that offer an evaluation of your credit score for free. The higher your credit score, the more reliable you will look to a lender. Having a good credit score will help you refinance for a lower interest rate, which, as mentioned earlier, is preferred to extending the length of your loan. If your credit score is low, take steps to do what you can to raise it, even if that means waiting a few months before refinancing.
3. Check in all of your options before you make any decision. It’s important to shop around and do your research before making any decisions.
Talk with your current lender. If you have a good record of on time payments with your lender as well as on your credit score, your current lender is more likely to be willing to refinance your loan.
Talk with your community bank. Look into refinancing your loan locally. If they don’t offer to refinance, the loan officer will be able to at least offer you advice on your options.
Contact the U.S. Department of Education. If you have federal student loans, there are different options for longer repayment periods and even loan forgiveness if you work in certain fields. Additionally, refinancing your federal student loan, especially a Perkins loan, can take away some of the benefits of having a federally funded loan.