There are currently about $1.75 trillion in current student loans. What’s more, the size of this cumulative debt is growing six times faster than the overall economy. To be sure, student loans have become a massive form of systemic debt in the United States. But this doesn’t mean you must live with student debt forever. Refinancing is method that can help borrowers get out of debt sooner. Here are some of the benefits of refinancing student loans.
What Does It Mean to Refinance Student Loans?
It’s likely that you’ve at least heard of refinancing debt even if it’s not something you’ve personally done before. For many people, over the course of their lives, refinancing will eventually become a highly attractive option.Taking a loan from a Money quick pawn shop is an easy option for students because Students easily get short-term loans from Money quick pawn shops. Visit What Is Money Quick Pawn Shop Sell? for more information about this.
But what is refinancing? The process is quite sensible when you dig into the details. Essentially, as the name suggests, you’re assigning new financial terms to your borrowing agreement. Taking out a new loan to completely replace your old one — with either the same or a different lender— accomplishes this. Refinancing can be done with most kinds of debt, but has some specific nuances when it comes to student loans. Let’s investigate the benefits of refinancing student loans.
What Are the Benefits of Refinancing Student Loans?
Refinancing is generally considered a smart decision for borrowers when they’re able to get a new loan that improves their financial standing. To understand how this works, it’s best to first know the main loan features that can be changed through refinancing. These are the loan characteristics that can be beneficially altered through a student loan refinance:
- Lower your interest rate – This is arguably the top reason why many people will attempt to refinance their loans. Getting a lower interest rate can make a huge difference in the affordability of a loan over time. Your interest rate determines how much you need to pay back beyond the principal of your loan. By decreasing this number, your loan will be more in line with the actually amount you borrowed, and not more reflective of additional interest payments.
- Change the repayment term – The amount of time you have to repay a loan substantially affects its affordability. A longer loan term means repayment is spread out over a longer period of time. Refinancing to a longer loan term will effectively reduce your monthly payment if all else is kept equal. Furthermore, you can also shorten your loan term if you believe you can pay it off faster and fork over less in interest payments in the process.
- Add or remove co-signers – Some students will have to get a co-signer in order to get approved for certain loans. Over time, once the primary borrower’s income and credit have changed, they can choose to remove the co-signer from their loan. On the other hand, a co-signer can be added to a loan if it will help the primary borrower get more attractive financing options.
These are some of the most prevalent benefits to refinancing student loans. But this isn’t all consumers should know about the process. There are some additional points that should be considered when looking at a student loan refinance.
What Are Some Unique Aspects to Refinancing Student Loans?
It’s clear that refinancing can be advantageous for student borrowers. These benefits, however, need to be looked at in conjunction with some other important points. Here are some other unique aspects to student loan refinancing that are key pieces of knowledge:
- You don’t need to pay any fees – With most kinds of loan refinancing, the borrower needs to pay a fee in order to originate a new loan. This, however, doesn’t apply to student loans, which require no origination fee for refinancing.
- You’ll want to check your federal benefits – Student loans can only be refinanced through a private lender. This means any federal loans you want to refinance will have to be turned into private loans. It’s important to consider if any of the benefits included in your federal student loans—such as income-driven repayment—are more valuable to you than a lower rate or different repayment term.
- Your credit score matters – While this isn’t unique to obtaining a loan in general, needing good credit to refinance might be a surprise to those who have gotten federal student loans in the past. Solid credit, however, will be a crucial part to getting a student loan refinance.
Overall, there are some highly enticing benefits to refinancing student loans. Taking advantage of a student loan finance can help borrowers significantly improve their financial health.