Benefits of Refinancing your Student Loans
Refinancing student loan debt can help modify your student loans to save you money, get out of debt faster, and eliminate headaches.
What are the top reasons for refinancing your student loans?
1.) Lower Interest Rate/Accrue Less Interest
Considering you have a steady monthly income and good credit score, your risk as a student loan borrower to the bank has dropped since you initially borrowed the student loan. Some banks are willing to lower your student loan interest rate through refinancing due to decreased credit risk. By lowering your interest rate you will accrue less interest to save money and have a better chance at eliminating your student loan debt faster!
2.) Lower Monthly Payments
Refinancing your student loan can mean a lower interest rate, but can also modify your repayment terms. Most federal and private loans by default have a 10 year repayment term. Refinancing options vary by bank, but typical options include 5, 10, 15, 20 year terms. This means if your current loan has a 10 year repayment term and you switch to a 20 year term, your monthly payments will drop significantly.
Wise Note: Your monthly payments will drop, but be careful as you will accrue more interest and end up paying more over the long term.
3.) Flexible Repayment Plans
Not many, but a few banks offer alternative student loan repayment plans. While your federal loan options include Pay As You Earn, Income Based Repayment, and Income Sensitive Repayment, private student loans typically have limited repayment programs such as Interest Only payments, Economic Hardship Deferment, and a Grace Period. These options are tools to help you lower monthly payments and manage your debt during the first few years out of school. Keep in mind, these repayment plans will also accrue more interest over the long term.
4.) Cosigner Release
If you needed your parents to co-sign your student loans, you already know the added stress this can create in relationships. By releasing your co-signer, the co-signer can improve their credit score and gain access to new lines of financial capital to help buy things like a home, car, or even start a business.
5.) Switch Banks
Most US Student Loan Center users that we have talked to aren’t very pleased with the level or student loan servicing they are provided. Refinancing might give you the opportunity to switch to a new bank that has a great customer service record or better track record working with student loan borrowers.
6.) Consolidate Multiple Loans
Did you know the average Student Loan Hero user has 7 loans with 2-3 different student loan servicers? This can get confusing to manage, especially if your student loans are being sold to other banks every few years. Refinancing your student loans can allow you to consolidate multiple student loans into one debt, making your student loan debt easier to organize, track, and repay.
At the end of the day, there is no one-size-fits-all answer to this question. It comes down to your personal financial situation and expected outcome.
What were your personal reasons to refinance your student loans?