More and more people are interested in how to refinance student loans. In general, refinancing your student loans will provide you with a lower monthly payment, smaller interest and finance charges, and boost your budgets by allowing more room between income coming into your accounts, and money going out. We’ll show you how to refinance student loans with a number of different financing programs.
Student Loan Consolidation
Student loan consolidation programs allow students to refinance and combine their student loan debts, thus creating only one regular monthly payment out of what might have been several monthly bills. A student loan consolidation program also allows students to extend the repayment terms, negotiate a lower interest rate, and work towards a better schedule for financial success.
In a student loan consolidation your existing debts will be replaced with a single loan. This single loan is often in the exact amount of your current debts, and the cash from the loan is sent directly from the bank to your current lenders to pay off your accounts. In general, student loan consolidations have the following benefits:
Fixed rates – Most student loans from private companies are offered on variable rate terms, which make your monthly payments subject to changes in interest rates, business conditions, and general economic trends. When graduates go to refinance their student loans, many opt for fixed rates, which decrease the variability in your monthly payments. With a fixed rate loan, your monthly payments will always be the same amount.
Remove cosigners – Naturally, cosigners are concerned about the negative consequences from others affecting their personal finances. If your parents signed for a student loan while you were in college, then it is very possible that their names are still on the student loan. Should you fail to pay, your cosigners are asked to pay on your behalf. Meanwhile, the student loan company will begin to report the nonpayment to credit agencies, affecting the credit of the student borrower and the cosigners. By consolidating your debts, you’ll be able to pay off the loans where a cosigner has risked their credit for you. The replacement, a loan from a consolidation company, should be without a cosigner, as you have already established your credit, and your career path.
Speed up payoff date – Borrowers can greatly reduce the amount of time necessary to pay off their student loans by refinancing their student loan debts with a new lender. By reducing your rates by even 1-2%, your total savings may be 5-10 years of payments, making you free a whole decade earlier than with your current loan.
How to Refinance Student Loans
Here is a very simple process to follow for refinancing your student loan debt:
1. Categorize your debts
The first step to refinancing a student loan debt to categorize the many loans you have outstanding. First, order your student loans by interest rate, with the highest interest rate loans being the most important to refinance. Secondly, order your student loan debts by the monthly payment and length of time to pay them off. If your goal is to reduce your total monthly payments, but not necessarily your interest rate, you’ll want to extend the length of time to pay off your soon to end loans.
2. Pick a payment
Find a monthly payment that you’re comfortable with and go from there. If you can afford $500 per month reasonably, then go with $500 per month. If $300 payments are too much, then set a target to have a payment of less than $200 per month. By picking a payment that fits into your budget, you ensure that you’ll always have enough money to pay the debt, and also enough money going to your debts so that they don’t grow forever.
3. Call a bank
Start soliciting quotes from banks as soon as you’ve picked your payment. Be sure to ask for as many quotes as you can within the span of 30 days to avoid too many pulls on your credit report. Applying for a refinance is just like applying for any other loan, and credit agencies combine multiple but related credit pulls within the span of 30 days into just one pull on your report.
4. Make a decision
Now that you have rates and quotes in hand, start filtering out the banks by the cost of the loan. Lending is a commodity; money from one bank is just as good as money from another. Be sure to get the effective annual interest rate on each of your lending opportunities so you know exactly how one bank stacks up to another.