When you’re in school, getting financial aid, grants and scholarships are great ways to pay for college. Unfortunately, when those funds run out, and it’s time to pay the rest of the bill, not everyone has that kind of cash lying around. This is where student loans come in handy.
A student loan can be a great way to finance your education when you need to pay for tuition, housing and other related expenses. However, these loans aren’t free money – they come with strings attached.
If you want to refinance your student loan or find out about refinancing as an option for paying off your current loans, this ultimate guide will help you understand everything you need to know about student loans and refinance.
What is Refinancing?
Refinancing is the process of taking out a new loan to pay off an existing loan, usually with a lower interest rate and better terms. This can be a great option if you have high-interest student loans. You can refinance your current student loan as a way to get a lower interest rate – or a better repayment plan – to make paying off your loans easier.
However, keep in mind that with refinancing, you’ll likely end up extending the life of your loan. This means you’ll have to pay it off over a longer period of time. And if you refinance a federal loan to get a lower interest rate, you’ll lose any federal loan benefits, like repayment options and forgiveness programs.
How to Refinance Your Student Loan
Finding the right refinance student loan company is important because you’ll be working with them for the next few years. You’ll want to make sure they have a good track record and offer competitive interest rates. Your best bet is to start out with a free refinance student loan quote.
There are plenty of companies that offer this service. Your search should include looking into both federal and private student loans. This depends on your financial situation and what options are available to you.
You’ll need to gather the following information before refinancing your student loan:
- Your current loan amount and monthly payment
- The interest rate on your loans and the repayment schedule
- Your current credit score and debt-to-income ratio
- The amount you can afford to refinance
The Basics of Student Loans
Student loans are incredibly common in the United States. According to the National Center for Education Statistics, almost three-quarters of students at public universities take out loans.
When you take out a student loan, you’re borrowing money that you promise to pay back – usually with interest. There are several types of student loans that you may be able to get:
- Federal Direct Loans: Federal Direct Loans are the most common type of student loan. You can get these loans directly from the federal government.
- Federal Perkins Loans: This type of loan is specifically for students studying in certain fields, like teaching or nursing.
- Federal Parent PLUS Loans: This type of loan is to help parents pay for their child’s education.
When Should You Refinance Your Loan?
If you have a good payment history, refinancing your loan could lower your payment. However, refinancing isn’t for everyone. It’s important to be aware of the potential downsides of refinancing, including extending the life of your loan and losing access to certain federal loan benefits. If you’re not sure whether refinancing is right for you, speak with your loan officer to learn more.
How to Find the Best Refinancing Deal
You can research various refinance student loan companies and see what they offer. Make a list of all the companies you would consider.
Then, compare rates, terms, and fees to find the best offer. For example, companies like Purefy offer competitive rates from lenders who help you refinance Parent Plus loans or federal and private loans. Trusted lenders can help consolidate previous loans and reduce your monthly payments.
When You Shouldn’t Refinance Your Loan
While refinancing your student loans can help you save money, there are some cases where it may not be a good idea. When you have a high-interest rate and low payments, refinancing can lower your payments, but it won’t lower your interest rate.
If your interest rate is high, refinancing may lower your payments, but it won’t lower your interest rate. If you have different types of student loans, you’ll want to refinance them all at once, or the refinance will only apply to the first loan in your name.
And if you have private loans that are in deferment or forbearance, you can’t refinance them. If you have federal loans, there are certain benefits you can lose if you refinance, like income-based repayment and loan forgiveness.
Student loans are an important part of financing higher education in the United States. However, they are a type of debt that should be managed carefully. That’s because taking out too many student loans can put you at risk of becoming financially strapped and unable to repay your debt. To make sure you stay on track, keep a budget, track your loans and talk with your loan officers.