Should I Refinance Student Loans Now?

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Student loans

If you have student loans, you are not alone. According to the latest student debt statistics, there are 45 million borrowers who collectively owe $ 1.6 trillion in student debt. What’s the best way to pay off student loans? There are a number of student loan repayment strategies, ranging from income-based repayment to student loan refinancing. Let’s see if refinancing a student loan is right for you.


Student loan refinancing

Refinancing a student loan involves consolidating your current federal student loans, private student loans, or both into a single new student loan with a lower interest rate. When you refinance student loans, you can earn a lower interest rate, lower monthly payments, and pay off student loan debt faster. You can also choose the length of your student loan repayment period, which typically ranges from 5 to 20 years, and whether you prefer a fixed interest rate or a variable interest rate. A fixed interest rate means that the interest rate on your student loans will not change during the term of your loan. For example, if you refinance student loans and get an interest rate of 3%, you will still have an interest rate of 3%. A variable interest rate means that your interest can go up or down over the life of your loan. If you think the interest rate will increase over time, it may be beneficial to choose a fixed interest rate. If you think interest rates will go down over time, you may prefer a variable interest rate. Variable interest rates are lower than fixed interest rates and start at 1.99% today.

 

Now let’s take a look at why you should and shouldn’t refinance student loans. Your financial situation is unique, so it’s up to you to decide what’s best for you.


Why You Shouldn’t Refinance Student Loans Now

Let’s start with a few reasons not to refinance student loans now.

1. Pause of payment

First, President Donald Trump has suspended federal student loan payments until December 31, 2020. This means that you are not required to make federal student loan payments during that time. It is important to note that this only applies to federal student loans, not private student loans. In addition, a payment break is not the same as the student loan forgiveness.


2. No new accrued interest

Second, no new interest will accrue on your federal student loans during this time. Interest expense can dramatically increase your student loan balance, so this temporary stay can help reduce the financial burden.


3. Private student loans

Third, once you refinance federal student loans, they become private student loans. Why? When you refinance student loans, you are refinancing with a private student lender. Therefore, if you are planning to pursue utility loan cancellation or income-based repayment plans for your federal student loans, you may not want to refinance federal student loans. To take advantage of these opportunities, you need current federal student loans. Likewise, if you are in financial difficulty or need options for forbearance or deferral, you may prefer to keep federal student loans outstanding. That said, most private lenders now offer post-refinance deferral options that allow you to defer your student loan payments if you lose unemployment or face other financial hardship. You can also refinance your private student loans only if you choose not to refinance federal student loans.


Why You Should Refinance Your Student Loans Now

There are many reasons why you should refinance your student loans now:

1. Get a lower interest rate

The main goal of refinancing a student loan is to get a lower interest rate and save money. With a lower interest rate, you can get a lower monthly payment and pay off your student loans faster. Remember this: after the temporary student loan relief ends, you will have the same interest rate as before. This means that interest will start to accrue again and your student loan balance may increase. Refinancing a student loan could help you get a lower rate today. Most lenders allow you to check your interest rate for free online within about two minutes without impacting your credit score.

2. Choose your own monthly payment

Refinancing a student loan offers more flexibility than a traditional federal student loan with a 10-year repayment period. For example, with student loan refinancing, you can choose from several student loan repayment options. For example, if you want to pay off your student loans faster, you should choose a shorter repayment period, such as 5 years. You would have a higher monthly payment, but could save considerably on interest payments. Alternatively, you can choose a longer student loan repayment term, for example 20 years. This would result in lower monthly payments, but increase the total interest paid. Overall, choose a student loan term that best suits your financial life.

3. Student loan relief is temporary

Current student loan relief is temporary and only applies to your federal student loans. You still have to pay off your private student loans in the normal course. If you are having financial difficulty, it is certainly beneficial to suspend federal student loan payments now. The downside of not paying your student loans today is that your balance won’t go away. Student loan relief is temporary and your student loan balance and the current rate will still be there if you don’t take action. Just because federal loan payments are suspended doesn’t mean you shouldn’t be paying them. On the contrary, now is the perfect time, if you have the financial resources, to pay off student loans faster through refinancing student loans and paying off student loans.


How To Get Approved For A Student Loan Refinance

To get approved for student loan refinancing, you typically have a credit score of at least 650, are currently employed, have a stable monthly income, and have a low debt-to-debt ratio. Lenders want to make sure that you can pay off your student loans and debt as well as living expenses. If you are unemployed, have a poor credit rating, or are struggling financially, you may not be the best candidate for student loan refinancing. You can also apply with a qualified co-signer, such as a parent or spouse who has a strong credit and income profile. While the co-signer assumes equal financial responsibility for your student loans, a qualified co-signer can help you get approval to refinance your student loan and get a lower interest rate.

How Much Money Can You Save With Student Loan Refinancing? Suppose you have $ 80,000 in student loans with an interest rate of 8% and a repayment term of 10 years. If you can refinance with an interest rate of 3% and a 10-year repayment term, you could save $ 198 each month and $ 23,776 in total.

This student loan refinance calculator shows you how much you can save when you refinance student loans.


Student loans: resources

Will Trump cancel student loans?

15 secrets to refinancing student loans

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