The majority of people end up leaving school with debt. Per the White House, 70 percent of individuals with a bachelor’s degree graduate with debt, and there is approximate $1.2 trillion dollars in outstanding student loan debt.
Student loan debt can make it hard to pay bills, and it can also negatively affect your credit, making it difficult to obtain a car loan or a mortgage. If you’re struggling under the weight of student debt, you may want to consider refinancing your loans.
Student Loan Refinancing
Refinancing a student loan is somewhat like refinancing a home loan. By refinancing your loan, you can take advantage of a lower interest rate, which can result in smaller monthly payments. A reduced interest rate will also enable you to pay less money overall to get out of debt.
Student loan refinancing is sometimes confused with student loan consolidation, but they are two different types of debt relief. Student loan consolidation allows you to combine multiple debts into one loan, which means you only need to make one payment each month instead of several. In some cases, consolidation can also extend the amount of time that you have to pay back your loans.
To be able to refinance your student loans, you’ll need a steady income and a fairly high credit score. If you have a solid income but your credit rating isn’t that great, a co-signer may allow you to still qualify for a refinance. There are a number of banks and lending institutions that offer student loan refinancing, and their requirements for a refinance are along the same lines.
In the majority of cases, you’ll need a credit score of 750 or higher. You may qualify for a refinance with a credit score of 700 with a few lenders, but there are also lenders that won’t offer you a refinance without a score of 780 or higher.
Most lenders offer both fixed and variable rate financing. The interest rates available to you will generally depend on the size of your loan, your credit rating and whether you opt for a fixed or variable interest rate. Fixed interest rates range from as low as about 3.3 percent to around 7.3 percent. With variable interest rates, you could see rates as low as 2.3 percent.
There are a few banks that even offer hybrid interest rates, which start out with a fixed interest rate and then become variable. Interest rates for hybrid refinancing tend to fall in the middle of the rates that are available for fixed and variable interest refinancing.
Is Refinancing Right For You?
While there are some significant advantages to refinancing your student loans, including reducing your payments and the total amount you owe, refinancing isn’t the best choice for everyone. When you refinance your student loans, the lender pays off your debt to the government.
This means that federal programs that can help you reduce your payments or extend the time you have to pay loans back will no longer be available to you. If you are considering taking advantage of a student loan public service forgiveness program, you should be aware that a refinance will make you ineligible.
It’s also important that you’ll be able to pay back your loan if you use a co-signer. If you are unable to pay back the lender that refinanced your loan, your co-signer will be obligated to pay the balance.