If you are like many college students, once you graduate you face a mountain of debt you must repay. Edvisors.com reports the average student loan debt of a 2015 college graduate is $35,501. As the average debt continues to rise knowing your repayment options is vital towards helping you save money.
One option you should consider is refinancing your student loans. When you refinance, your new lender takes on your current debt, but might offer you beneficial terms such as a lower interest rate. Refinancing is a great option for you to examine for the following instances.
Receive a Better Interest Rates with a Student Loan Refinance
If you used private loans to fund some of your education, it's important to examine their interest rates to make sure you receiving a fair deal. Depending on your credit at the time of the application, you could be overpaying since private lenders can charge a substantially higher interest rate, which will result in you having to pay more for the debt over time.
As an illustration, say you have a $5,000 loan balance with an interest rate of 9.25% APR on a five-year term. With this, you'll have a monthly payment of $104.40. Meanwhile, if you have better credit and refinanced the loan to a lower interest rate (say 5%), you'll only pay $94.36 monthly. That might not seem like a big difference but over the course of five years it equates to you saving over $600. Now if owe well more than $5,000 like many do you can see just how much money refinancing can save you.
Consolidate Private Student Loans to Lower Payments
- If you have multiple student loan providers consider consolidating all your loans with one lender. This can provide you with many benefits including:
- If you have a strong credit score you could receive a lower interest rate. As noted above, this will lower your monthly payments and help you repay less debt over time than maintaining loans with higher rates.
- It also makes it easier to manage your debt since you make one payment instead of multiple.
- You can choose the loan terms that best fit your needs such as a fixed or variable rate plan.
Combine Federal Student Loans to Make Payments Manageable
If you financed your education with federal loans, you'll also have the option to consolidate thereby making it easier to manage payments. However, there are certain things you should be mindful of before you consolidate federal student loans:
- You can lower your monthly payments by extending your loan to 30 years. With this in mind, always look towards the future when thinking about this option. While it might save you some money in minimum payments now, it could cost you significantly more in total loan cost due to extending its length.
- If you consolidate your federal loans, you give up any benefits your current provider offers, which might include interest rate discounts and loan cancellation programs. Therefore, it's important to weight the benefits against what you have to give up to determine if it's worth it.
Refinancing your student loans can be beneficial in certain circumstances. It's important to take your time to explore all your options before determining if the solution is best for your financial needs.