Refinancing your student loans can be a way of saving a lot of money. The length of your repayment can make you pay more than it is needed. Nonetheless, refinancing does not work in every situation. In this article, we will try to take a look at this technique and learn when we should use it.
Help Your Co-signer
Many students get a co-signer in order to get their loan approved. Lenders are more likely to offer a loan if there is a co-signer with proper credit. However, this situation might not be that favorable for your co-signer. That person can get in trouble if you miss a payment. Therefore, if you want to protect a co-signer, you might want to refinance your loan in your name so that the other person is relieved of responsibility.
High-Interest Federal Loans
If you have federal loans, your interest might be very high. In some cases, the interest rate goes up to 6%-8% interest. This means that you spend a lot of money unnecessarily. However, if you choose to refinance your student loans you might get a lower interest rate.
There are lenders who can offer you a fixed interest rate that is around 3%. Your monthly payment will be lower as well, and it will be easier for you to pay it. You can find more information about it here.
Compared to the federal loans, private loans are stricter. Therefore, dealing with private loans can be more complicated. If you have a variable interest rate, it might go as high as 9%. Since they are not fixed, you can also expect monthly payments that change regularly.
Refinancing your private loan is usually a good idea. If you manage to refinance it, the amount of interest should go down. You will also be able to choose a fixed rate when you refinance your loan. While it might seem a bit too much at first, the good thing is that it will never change and there won’t be any surprises.
Refinancing your loans is not always a good idea. For example, if you want to work in public service, you might be granted loan forgiveness. Qualifying for Public Service Forgiveness is possible, and after ten years of making the payments, your loans will be forgiven by the government.
Refinancing your debt means that you won’t be eligible for PSLF. Therefore if you have a federal loan and you plan to have a public service career, you shouldn’t refinance your loan.
Get an Income-Driven Repayment
In some cases, you might need an income-driven repayment plan. This plan changes your payments so that they match your income. If an IDR is what you need, you should forget about refinancing your loan.
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