Many students will agree that student loans are a welcomed and often necessary part of the financial aid package when pursuing higher education – but most graduates don’t look forward to entering the repayment phase. Fortunately, student loan refinancing programshelp borrowers by combining one or more federal and private student loans into a single loan with new terms – a new monthly payment amount, new repayment terms, and expectedly a lower interest rate. With the many positives of student loan refinancing — all of which may help borrowers save money during their repayment period — there are also some lesser-known topics that borrowers should always keep in mind when researching their refinancing options. Here are three things to never overlook when thinking about refinancing your student loans.
1. Always Research the Best Options:
Student loan refinancing programs should be given just as much consideration as the school in which you attended when said loans were created. Like choosing the wrong school, selecting the wrong refinancing program can be detrimental. Simply put, performing an internet search for “student loan refinancing” is not enough to obtain the terms needed to save money. You should thoroughly compare student loan refinancing lenders. There are hundreds of financial institutions, and with so many programs to consider, it is extremely important to find a program that is going to work for you and your budget. The best way for you to ensure that the lending institution is leading you in the right direction — and doing what is right for you and your budget — is to do research and ask questions. Start by making sure you understand the repayment terminology, and then investigate the company. Look for reviews (Trustpilot is a great resource for reviews) and call the lending institution to ask questions. At the very least, lenders must be credible and reputable, but they should also be available to thoroughly answer all of your questions. Finally, if you choose to refinance your loans, make sure you understand exactly what you have to gain or lose with each. Do this, and you are on your way to protecting your wallet and your financial independence.
2. Always Weigh the Implications of Refinancing Federal Student Loans:
Refinancing student loans with a private lender involves student loan consolidation, which means multiple student loans (federal and private) are combined into a single loan, with a single monthly payment. This newly refinanced student loan will have new terms, a potentially lower interest rate, a new monthly payment amount, and/or a new repayment length. See the benefits of refinancing student loans here. Before this process takes place, however, it is especially important to understand exactly what changes will take place if you choose to include any or all of your federal loans into the refinancing package, as refinancing a federal loan may nullify federal student loan protections, such as public service forgiveness and income-based repayment plans. With this in mind, and given that many private lenders are willing to offer similar benefits to help their clients remain in good standing, some people still choose to include federal loans in the refinanced package simply to create a single, more convenient repayment plan.
3. Always Compare Fixed and Variable Interest Rates:
When considering student loan refinancing, borrowers commonly forget to compare their options regarding the two types of interest rates on loans — fixed interest and variable interest rates.
- Variable rates change over time based on current financial and economic conditions, including the current LIBOR rate. They can do so at any time in the financial climate, thereby affecting the interest applied to a loan. Variable interest rates will often start lower than fixed interest rates, but there is always the possibility that, as they fluctuate, they will rise and cause an increase in monthly payments.
- Fixed rates, on the other hand, maintain the interest rate that was agreed upon in the initial contract, and remain at that rate over the life of the loan. With a fixed-rate loan, borrowers are protected against the possibility of rising interest rates during the entire repayment period.
Choose the Right Program
Finding the right student loan refinancing program (along with agreeable terms and rates) can be time-consuming and daunting, especially for first-time refinancers. However, understanding your options is the best way to obtain a firm grasp on your finances and find the best refinancing loan possible. If you need any assistance, Education Loan Finance’s refinancing experts and management team — with over thirty years of experience in the student loan industry — will gladly help!*
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