You Could Save Money By Refinancing Your Student Loans
If you have several student loans with high interest rates, you might want to consider refinancing them into a new consolidation loan. By rolling the into one may you may be able to reduce the financing fees and lower your overall monthly payment. While student loan refinancing is restricted to those individuals no longer attending school, it is also available to those who are in their grace period.
How Does Consolidation Save Me Money?
Student loans interest rates fluctuate all the time. Refinancing your loans into a single consolidation loan when interest rates are low reduces your monthly payment, and possibly lower the total cost of the loan overall. Students with private student loans and federal students loans are eligible to refinance.
Exactly How Does This Work?
When consolidating your existing student loans into a new one, the original lenders are paid off by a new lender, who may or may not be the same financing institution. Using money from the new loan, the lender pays down the debt of the old higher interest rate loans, to replace them with your new one, possibly one with a lower interest rate.
Once this happens, the multiple monthly payments no longer exist. In their place, a new payment plan takes over, requiring you to make a single monthly payment, which can be at a greatly reduced amount. For instance, if the old loans were originally set up to pay off over a five year period, your new single loan may be set for an extended period of time, maybe ten years. This could allow you the option of trading more accrued interest over the extended time for a greatly reduced monthly payment.
To illustrate this, say the balances of all your existing outstanding student loans add up to $10,000, and have a 6.8% interest rate over five years. The payments for this would equal $197 each month, and over the five year course of payments you would have pay all the principle and interest totaling $11,824. But instead of struggling with paying that monthly obligation you choose to refinance your loans and consolidate them into a new one, with an extended amount of time, say ten years. Even keeping the same interest rate as the old ones, and just giving yourself more time to pay it off, your new payments would be only $115 per month, though the overall total amount of repayment would increase to $13,810.
But reducing the amount of the monthly payment might greatly reduce the monthly strain in meeting your financial obligation. Trading a higher overall repayment amount might be a good decision if you now struggle each month to make the payments.
Does Refinancing Make Sense For Me?
Refinancing could be a good decision if the current student loan interest rates are significantly lower than the amount you are paying, or if you are struggling to make your monthly payments. If you can consolidate all your loans and extend the amount of years to repay, you can reduce your monthly payments into something more manageable.
To help you decide if consolidating your loans is the right thing for you, consult with lenders, and shop around for the best term and interest each can provide.
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