Federal student loans offer some important benefits that you don’t always get with private student loans. For example, you may be one of millions of federal student loan borrowers enjoying a temporary payment pause under the CARES Act.
Whether you have a college loan, graduate student loan, medical school loan, or MBA loan from Sallie Mae, you will not accrue interest during this grace period. However, it is important to note that private student loans do not fall under the umbrella of the legislation.
If you have personal student loans, now could be a good time to review your repayment options and consider refinancing. Refinancing private student loans could result in savings if you can refinance at a lower interest rate. And it could also result in lower monthly payments, which can take less of a strain on your budget.
To understand how much a refinance can save you, you need a student loan refinance calculator and a good idea of what interest rates you may qualify for.
Not sure if refinancing a student loan is the right move? Here’s a closer look at the benefits of student loan refinance.
WHY FINANCIAL PROFESSIONALS ARE CALLING ON STUDENT LOAN BORRORS TO REFINANCE
You can get a better interest rate
Student loan rates have been trending down since the start of the COVID-19 pandemic, when the Federal Reserve decided to cut the Fed’s benchmark rate to near zero. Refinancing private student loans could work in your favor now if you can lock in lower interest rates.
Remember that good credit is key to securing the best rates. Bad credit can affect your credit history, loan amounts, and loan options, so it’s crucial to get any debts or payments in order before any necessary credit check is performed.
Refinancing private student loans can also be considered if you want to switch from variable rates to fixed rates or vice versa. Check your rates at Credible, where you can easily compare rates from multiple lenders in one place.
STUDENT LOAN REFINANCING RATES HAVE NEVER BEEN LOWER
You may be able to pay off private student loans more quickly
Refinancing private student loans can help save money on interest, but it could also help you pay off debt sooner. When you refinance at a lower interest rate, a larger portion of your monthly payment goes towards the bulk of college expenses.
The faster you can pay off personal student loans, the faster you can free up money in your budget to work towards other personal finance goals. For example, you might be interested in buying a house, which means you can afford a mortgage.
Federal and personal college loans both have repayment terms set by the lender, but if you can refinance and pay off the debt before the end of the loan term, you can likely avoid accruing interest.
You can use an online tool like Credible to get pre-qualified student loan refinance rates without hurting your credit score.
PRIVATE STUDENT LOAN REFINANCE YEAR BEGINS: HERE’S WHAT YOU NEED TO KNOW
You do not risk losing federal student loan benefits
If you have federal student loans, you probably know that they offer some built-in benefits. These include deferral and forbearance options, grace periods, income-based repayment plans, and the ability to achieve credit forgiveness depending on your career plans. And of course, federal student loans are covered by CARES Act protections through September 30, 2021.
By refinancing private student loans there is no risk of losing these benefits as they do not apply to private student loans. But think twice if you’re considering refinancing federal student loans with private loan servicers.
“Congress and the President are proposing an outstanding amount for loan forgiveness, and it may be beneficial to wait until that is finalized,” said Fred Amrein, CEO and founder of student loan resource site PayforEd.
A government forgiveness program may not extend to private debt, so refinancing a government student debt into a private educational loan may mean you miss out on a loan forgiveness opportunity.
CAN YOU FORGOT STUDENT LOANS IF YOU REFINANCE?
What you need to qualify for student loan refinance
When looking to refinance student loans, two of the most important lenders are your debt-to-income ratio and your credit history, Amrein says. Reviewing your credit history can help you determine how likely you are to qualify yourself or if you may need a creditworthy co-signer.
In particular, consider your:
- credit utilization rate
- Whether you have past delinquencies or defaults on your credit reports
Amrein says a co-signer may be able to help you qualify for lower interest rates if your credit history isn’t perfect. But it’s important to understand what cosigning means, in terms of who is legally responsible for the debt, and how it can affect your credit score.
What do you do next
There are usually no downsides to refinancing a personal loan if you can qualify for a loan at a lower interest rate than you already have. Not only could this mean saving money, but paying off the loan could also be easier to manage when multiple student loan debts are combined
Remember, you can use Credible to compare student loan refinance rates from multiple private lenders at once without hurting your credit score.
5 WAYS TO GET THE BEST STUDENT LOAN REFINANCING RATES
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