Typically, the goal of any type of refinancing is to pay off your debt quicker and save money in the long run. Student loan refinancing is not the exception.
With so much talk about student loan forgiveness and interest rates beginning to rise, now is a good time to dive into some common questions surrounding refinancing.
What is student loan refinancing?
Refinancing your student loan replaces your existing loan with a new one. This is usually done to attain more favorable terms such as a lower interest rate or a shorter repayment period.
You may consider refinancing if your income or credit score has increased since first taking out the loan. The result may be better terms that will benefit your financial situation. Also, if you have various loans, refinancing can help you consolidate them for easier repayment.
How does it work?
Refinancing your student loans is only available through private lenders such as College Ave.
Your new loan pays off your existing student loan, and refinancing at a lower interest rate can reduce your monthly payment and save you thousands in the long run. Depending on your qualifications, the interest rate after refinancing might be as low as 3%. The greater the difference between your current rate and the new one, the more you can save.
You can always calculate how much you may save by refinancing. A useful tool is the College Ave Student Loans calculator.
Who should refinance?
If you took out a student loan with a high-interest rate, you’re an ideal candidate for refinancing. And, as mentioned above, if your finances are in a better position since you first took out the loan, you have better chances of getting more favorable terms this time around.
Refinancing private loans versus federal loans
The federal government does not have a refinance program. As such, the only refinancing option available for federal loans is through a private lender. That said, the federal government does offer federal loan consolidation.
Refinancing a private loan has virtually no drawbacks. If you receive better loan terms that either reduce your monthly payments or shorten your repayment period, you’ll find that refinancing can be very beneficial.
Federal borrowers who refinance their loans with private lenders will lose benefits such as income-driven repayment plans, along with possible deferment and forgiveness.
How to find the best lender?
Choosing a lender that suits your particular needs should be a well-informed decision.
With that in mind, evaluate APR offers because they include both the interest rate and fees. Also, watch out for loan terms. The interest rate on a 5-year repayment term won’t be the same as a 15-year term. Typically the shorter the term, the lower the rate. Some lenders even offer a choice between variable and fixed rates.
And lastly, consider the larger picture. You’re entering an agreement that will have an effect on your finances for years to come. Make sure the lender you choose is the best fit for you.
College Ave offers a simple application process that can be completed in just minutes, as well as helpful tools for your knowledge and convenience. Click here to find out more.