According to a recent CNBC report, 2015 graduates are leaving college with more than just a degree – they are also carrying an average of $35,051 in student loan debt. On a national level, outstanding student loan debt stands at $1.2 trillion.
It gets worse when you throw interest rates into the mix. This year's class will be paying 4 to 7 percent interest on their federal student loans. Interest rates on private loans are likely higher.
With private loans the borrower gets a variable interest rate based on their credit history. Chances are that if you're going to school you probably don't have much history, meaning you could be facing some high interest rates.
It can seem like a real burden to enter the real world when you're $30,000 in the hole. That's why some borrowers try to refinance their student loans.
Some borrowers who've graduated, have good credit and have secured a job may qualify for refinancing their private loans. And other borrowers may even consider refinancing their federal student loan into a private one. Here are some signs that you may want to look into refinancing your student loans.
Your Monthly Payments are Sky High
One of the main reasons people refinance their debts is because their monthly payments are unmanageable. By refinancing they may be able to lower the amount they pay each month.
The downside of this method is that the loan payment terms will likely be extended because it's going to take you longer to pay it off.
This is an option if you really can't afford to live because of your student loan debt. For example, if your student loans are impeding you from paying your rent then you may need to consider refinancing.
If this is your case you'll want to take a close look at the monthly APR of the new loan. Your monthly payment may be lower but the interest rate may be higher, meaning you'll end up paying more money in the end.
Your Loans Come with High Interest Rates
Another popular reason why people consider refinancing their student loans is to find lower interest rates. This is especially true if they have private student loans.
As I mentioned earlier, private loans rely on a student's personal credit history. Seeing as how it's unlikely that an 18 year old has a credit history, then a young adult may be faced with high interest rates.
Lenders are beginning to understand this and are offering young adults the opportunity to refinance their loans at much lower interest rates. Rather than taking your credit history into account, they also look at current cash flow and level of savings. Some lenders will even take your degree into consideration to determine your capability to pay back the loan.
You Need to Consolidate Multiple Loans
According to CNN Money, in 2014 Americans were carrying an average of four student loans per person. When you've got four different loans, from four different creditors, with four different monthly payments, four different interest rates and four different due dates things can get a little confusing.
It gets even more confusing if your student loans are being sold to new banks every few years. Imagine having to figure out who owns your loan when trying to write a check.
By refinancing your student loans you may be able to consolidate your loans into one debt that is easier to track, manage and pay.
For more about consolidating student loans check out our reviews.