Federal student loans offer key benefits that you don’t always get with private student loans. For example, you may be one of the millions of federal student loan borrowers with temporary disruption of payments under the CARES Act.
Whether you have a college loan, graduate student loan, medical school loan, or Sallie Mae MBA loan, they will not accrue interest during this forbearance period. However, it is important to note that private student loans are not covered by the legislation.
If you have private student loans, now may be the time to assess your repayment options and consider refinancing. Refinancing for private student loans could save you money if you are able to refinance at a lower rate. And that could also result in lower monthly payments, which can mean less pressure on your budget.
To understand how much refinancing can save you money, you’ll need a student loan refinance calculator and a good idea of ââthe rates you may qualify for.
Not sure if a student loan refinance is the right solution? Here is an overview of the benefits of student loan refinancing.
WHY FINANCIAL EXPERTS CALL STUDENT LOAN BORROWERS TO REFIN
You can get a better interest rate
Student loan interest rates have trended lower since the start of the COVID-19 pandemic, when the Federal Reserve elected to cut the federal funds rate to near zero. Refinancing private student loans now could work in your favor if you are able to lock in lower rates.
Keep in mind that having a good credit rating is the key to getting the best rates. Bad credit can affect your loan eligibility, loan amounts and options, so getting any debt or payment in order before a necessary credit check is crucial.
You can also consider refinancing private student loans if you want to switch from variable interest rates to fixed interest rates or vice versa. Check your rates on 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 repay private student loans faster
Refinancing private student loans can help you save money on interest, but it could also help you pay off debt sooner. When you refinance at a lower rate, a larger portion of your monthly payment goes towards the principal of the cost of college.
The faster you can pay off private student loans, the faster you can free up money in your budget to work toward other personal financial goals. For example, you might be interested in buying a home, which means being able to pay off a mortgage.
Federal and private college loans both have repayment periods set by lenders, but if you can refinance and pay off debt before the end of the loan term, you can probably avoid accruing interest.
You can use an online tool like Credible to get prequalified student loan refinance rates without affecting your credit score.
PRIVATE STUDENT LOAN REFINANCING SEASON STARTS: HERE’S WHAT YOU NEED TO KNOW
You don’t risk losing the benefits of the federal student loan
If you have federal student loans, you probably know that they come with built-in benefits. These include deferral and forbearance options, grace periods, income-based repayment plans, and the ability to get loan forgiveness, depending on your career plans. And of course, federal student loans are covered by the protections of the CARES Act until September 30, 2021.
Refinancing private student loans will not put you at risk of losing these benefits since they do not apply to private student loan debt. But think twice if you are considering refinancing federal student loans with private loan officers.
âA pending loan cancellation amount is proposed by Congress and the President and it may be beneficial to wait until this is finalized,â said Fred Amrein, CEO and founder of the Student Loan Resource site. PayforEd.
Any government forgiveness program may not extend to private school loans, so refinancing federal student debt into a private education loan could cause you to miss a loan forgiveness chance.
CAN YOU GET A STUDENT LOAN FORGIVENESS IF YOU REFINANCE YOURSELF?
What you’ll need to qualify for student loan refinancing
If you’re looking to refinance student loans, two of the most important lenders to consider are your debt-to-income ratio and your credit history, Amrein explains. Examining your credit history can help you determine how likely you are to qualify on your own or if you may need a creditworthy co-signer.
Consider more specifically your:
- Credit score
- Credit utilization rate
- Whether you have defaults or defaults on your credit reports
Amrein says that a co-signer can potentially help you qualify for lower rates when your credit is less than perfect. But it’s important to understand what co-signing means, in terms of who is legally responsible for the debt, and how it can impact both of your credit scores.
What to do next
There is usually nothing wrong with refinancing a private loan if you can qualify for it at a lower rate than you already have. Not only could this mean saving money, but loan repayment could also be more manageable by combining multiple student loan debts.
Remember that you can use Credible to compare student loan refinance rates from several private lenders at once without affecting your credit score.
5 WAYS TO GET THE BEST STUDENT LOAN REFINANCING RATES
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