4 Student Loan Refinancing Myths Explained
Struggling to pay your student loans is no laughing matter and it is one that can cause you a lot of stress and aggravation. Many students will turn to student loan refinancing to help relieve some of the anxiety they feel about the high monthly payments.
When you start to think about student loan refinancing, you may be nervous about the process. This is probably partly due to many of the misconceptions and myths that you have heard about it. Below, we will debunk these myths and provide you with the facts to help you make the right decision.
Myth 1: You’re Stuck with Your Federal Student Loan
Many people think that you are unable to refinance a federal student loan and this is a big myth. In fact, you CAN finance your federal loans and it may help you to do so. When you refinance, your federal student loans will be paid off and you will be given a new private student loan.
Myth 2: A Longer Term Means More Money in Interest
When you hear that students refinance their loan and they get a longer term, you may be thinking that it doesn’t make much sense because now they are paying more in the long run thanks to interest rates.
This is a myth and students can actually pay less or the same amount as they pay now even when they do extend their loan term. The way this works is that when the loan is refinanced, the student receives a lower interest rate. Therefore, the length of the loan can be extended without the student actually spending any additional money in the long run.
Myth 3: Student Loan Consolidation and Refinancing Are the Same
Incorrect. There is a fine line between consolidation and refinancing. Consolidation is the process of combining your loans together into a single loan. Refinancing is the process of working with a new lender who will pay off your current student loans and then issue you a new loan. The two are not the same and you need to make sure that you always know which one you are choosing before signing any paperwork.
You can consolidate your federal student loans into a new federal Direct Consolidation Loan, but your new loan's interest rate won't be any lower than your federal loans. When you refinance your student loans with a private lender, you can consolidate both federal and private student loans and receive a new, lower interest rate.
Myth 4: Any Student Who Has a Student Loan Can Refinance
Yes, and no. In the broad sense, yes, it is possible for anyone to refinance their loans and the opportunity to apply is there for everyone. However, in the smaller sense of things, no, not everyone can. In fact, before you refinance your student loan, it is recommended that you check the requirements.
Some lenders will only refinance student loans when the student has a solid credit history, good credit score, and verifiable income. It can be difficult to achieve refinancing is you do not have the minimum credentials, so make sure you always investigate further before you apply.
There are many myths that circulate around when it comes to student loan refinancing and it is important that you keep abreast of all requirements needed to actually go through with the process.
Above, you will find four of the most common myths surrounding student loan refinancing, but remember, they are just myths.