The average student loan debt per borrowers is $28,400, with roughly 70 percent of all college graduates being in student loan debt. With average new grad salaries being $45,327, the amount of student debt some people are in can be crippling.
If you are one of the 40 million Americans with student loan debt, there are ways you can reduce your monthly payments, your interest rates and the amount you owe on your loans overall. By refinancing your student loans, you no longer have to be trapped to your monthly student loan payments.
Reasons to Refinance Your Student Loans
Reduce Your Monthly Payments
Perhaps one of the best reasons to refinance your student loans is to lower your monthly payments. Assuming a loan amount of $30,000 at 6.21 percent interest and a 10-year repayment period, your monthly payment would be $336.23. By refinancing to a fixed rate as low as 3.50 percent, your payment would be reduced to $296.66. An extra $40 per month might not sound like much, but over the 10-year loan, you'd be saving $4,800. You could also apply that $40 to your principal each month and pay off your student loans early. Cacluate how much you can save by refinancing your student loans.
Lower Your Interest Rate
Monthly payments and interest rates go hand-in-hand. The lower your rate, the lower your monthly payment will be and the less you'll pay for the loan overall. To get the lowest rate possible, you'll want to compare different lenders and make sure your credit is in good standing. To keep your score as high as possible, pay all of your bills on time, keep your credit card balances less than 30 percent of your available credit limit, and dispute any errors on your report with the Federal Trade Commission.
Shorten Your Term
While lengthening your term and getting a better interest rate will lower your monthly payments, you could also opt to shorten your term and lower your rate. In most circumstances, this will increase your payment. However, you could pay off your loan years sooner than if you prolonged your term or kept it the same. To figure out if you should shorten your term, think about what your future goals are. Are you hoping to purchase a house soon? Do you want to travel before having kids? In most circumstances, the sooner you can eliminate your debts, the better.
Consolidate Your Loans
Most students graduate with more than one type of loan. Examples include Direct Subsidized Loans, Direct Unsubsidized Loans, Federal Stafford Loans, Direct PLUS Loans, Federal Perkins Loans, and more. Instead of making five monthly payments to varying lenders, you can consolidate your loans into one simple, fixed payment each month. Not only can this save you money, it also leaves little room for error as far as forgetting to pay a bill and having your credit take a hit.
Switch to a Flexible Repayment Plan
Perhaps you want to switch to a flexible repayment plan for your student loans instead of a fixed plan. This can provide more flexibility in your budget when you are starting out in your chosen career. Options include an Income-Based Repayment Plan, Pay As You Earn Repayment Plan, Income-Contingent Repayment Plan, and Income-Sensitive Repayment Plan. With all of these plans, your payments change as your income changes, giving you piece of mind that you will always be able to make your student loan payments.
Refinancing your student loans can be a wonderful option for those looking to lower their payments, shorten their terms or switch to a flexible repayment plan. If you decide refinancing is the way to go, shop a variety of lenders to make sure you are getting the best rate possible.