Literally millions of Americans are grappling with the agonizing problem of repaying student debt. With outstanding student debt topping $1 trillion, many are asking how to refinance student loans? It's an overwhelming task to sort through the options for refinancing or consolidating student loans, especially as you can't go back to the terms of earlier loans once you make your move.
Federal Student Loan Refinancing vs. Private
While there are government loan consolidation programs out there for refinancing federal student loans, refinancing private student loans can look like a real can of worms at first glance. A good place to start is taking a look at a few of today's top-rated private lenders specializing in student loan refinancing.
Social Finance Inc., known as SoFi for short, offers a choice of repayment terms and a bundle of features making them the pick of the crop for refinancing or consolidating private or federal student loans. They can pause loan payments when you are unemployed, a feature rarely seen from private lenders. LendKey is close on the heels of SoFi with their own bundle of innovative loan features, including an interest only option for unemployed students. Earnest offers competitive rates, and gets that rarest of compliments for a lender, they area highly recommended by customer reviews.
Traditional lenders such as banks they take your credit score, savings, assets, annual income and college degree into consideration for student loan refinancing. Those who don't meet the requirements of such lenders may be able to get approved with a consigner. Today's online lenders open things up nicely for more borrowers, using their own formulas for qualifying lenders, and offering the opportunity to apply and compare services online.
Interest Rates: Key to Refinancing
Before making a move to refinance or consolidate your student debt, take a close look at the terms of your current loan or loans. How much are you paying per month? What is the interest rate, and how much interest will you pay over the life of the loan? Is the rate fixed or variable? How long will it take to pay off your debt? Are their beneficial features to your current loan, such as no payments due while unemployed?
Pros and Cons of Refinancing Student Debt
Compare your current loans to the options your are considering. Ask the same questions and look at the loans head-to-head. Scrutinize interest rates. Consider whether it's in your best interest to lock in a fixed rate in the current economic climate. Are you thinking of repaying your loan over a longer term with a lower payment? While this will help your monthly budget, you'll be paying more over the life of the loan. Finally, be sure to take a look at any benefits you lose if you refinance or consolidate to a new loan.
Bottom line, if you can refinance to an overall lower rate over a term similar to your current loan, you stand to save thousands of dollars. On the other hand, if your current income is low, you can extend the term of your loan or lower payments. In this case, you are signed on to a more expensive payback over time, but can consider refinancing again in the future should your income increase.
If you've been asking, should I refinance my student loans? With a careful analysis of loans both old and new, you will be armed to make an intelligent decision about this keystone piece of your financial future.