The total debt that is owed in student loans continues to rise to an all time high; ways to refinance student loans are becoming increasingly popular amongst graduates. If we take Bay Area as an example, the number of institutions that have opened solely to help graduates refinance their student loans into one loan which normally will offer lower interest rates is of mammoth proportions. As a result of this there is far greater potential for the graduates that are saddled with high debt to lower the interest that they have to pay which in turns sees them saving money and meaning that they can pay their debt off quicker.
As good as this sounds, this is not ideal for everybody. It will be dependent on specific circumstances and these will determine whether you will or will not benefit from refinancing your student loans. If you already have a low interest rate, or your debt is minimal the savings may not be worthwhile. However for those that fit the criteria refinance student loans could see you saving money and reducing the life of the loan/s.
How to Refinance Student Loans:
Understand the Implications of Refinancing Your Student Loans
It is vital that you remember student loan finance is different from student loan consolidation. It is easy to confuse the two when researching as the terms are often used in conjunction with one and other.
Student loan consolidation is when you combine several loans into one, which means that you only have one payment rather than various amounts and dates to contend with. Consolidation may also give you the opportunity to lower the monthly payments and extend the time of the loan. Although this is appealing you can end up paying more interest over the life of the loan. The majority of people that choose this route do so for the convenience of one bill and reducing the monthly payments. Remember that while federal student loans can be consolidated with other federal student loans they cannot be consolidated with private student loans.
Taking out refinance student loans also means that multiple loans are combined into one loan and the borrower is furnished with a new interest rate for the loan that is based on the result of your credit score and how you have managed other financial commitments. These loans work on the basis that the refinancing company has brought your original loan and they then create a new loan under a new loan agreement. Once you have received the offer you have to choose the new repayment plan, which on average extends from 5 – 15 years, the interest rate is then determined and you then have to stick to the new terms that have been agreed. The lower interest combined with the repayment plan may mean that there is an increase in your monthly payments but ultimately you will save money in the long term.
When you have made the decisions that refinance student loansis theroute that you wish to take you will then want to find the company that best suits your need. There are a variety of ways you can approach this that student loan refinancing is the route you’d like to go, you’ll want to find the best company to suit your financial needs. There are various companies are available out there but you need to take precautions while you are choosing a company in order to refinance student loans.
Apply For Refinancing Offers
Most applications take minutes to fill out and are fairly simple, however you can make the entire process even easier by making sure that you have all of the information that you need to hand, the following check list should help you to be organized:
- Current credit score
- Annual income
- Total loan/s amount
- Social security number
- Rates of interest you are currently paying
With all of the information to hand you can then begin the application process at the site of your choice. The majority of sites use one simple form. Sites such as SoFi, require you to enter information on different screens before submitting your completed form.*
The reason that you have to submit the information regarding your finances is that the company can then fit this with their set of requirements. When they have collated all of the information they will then be in a position to discuss the ways they can work with you and your loans.
As some of the information is sensitive it is important to take precautions to protect your information. Only connect with a secure server that you trust, use a unique password when creating an account and remember to sign out when the process is complete.
4. Choose the Best Solution Based On What You Are Offered
When you have received all of your offers you can look further into which option will be best for you and your circumstances. You may find that some offers will offer far lower interest rates, however this is coupled with a rise in the payment you make monthly. It is important to assess all offers and plans for the repayment to make sure that the new agreements fit in with your finances. For example there may be a low interest offered but this is attached to a 5 year repayment plan, this is great for those with the financial flexibility to increase monthly payments, but this may not suit you. It is paramount that you calculate what the refinance student loans mean in relation to your debt and in accordance with your financial possibilities.
Start a New Repayment Plan
As soon as you have accepted an offer you are responsible to make the payments as set out in the terms that you have agreed to. When you refinance student loans you have started a new contract, this means that you should have reviewed all of the small print and continue to check this regularly to ensure that you are on track with the repayments. Should you fall into financial difficulty it is vital that you contact the refinancer to discuss the options.
Keep In Mind Your End Goal
Making the decision to refinance student loans is not one that should be taken lightly, it is crucial that you understand your goals as you will be altering the terns and timescale of your repayments and also possibly losing some of the original loan benefits, therefore you must ask yourself the following:
- What method of budgeting do you plan to use particularly if the payment is higher than the original one?
- With refinance student loans can you still save for your other financial goals as well as making the repayments to your student loans?