Student loan debt has been a growing national issue for some time. With roughly 70 percent of all college graduates being in student loan debt, many are looking for practical solutions to help them pay back their student loans quickly and efficiently.
That's where refinancing comes in. To refinance your student loans, you need to obtain a new loan with a different term and a lower interest rate. This can lighten your burden by simplifying your loans and possibly reducing your monthly payment amounts.
Here are a few situations when you should consider refinancing your student loans.
You Plan to Buy a House or Take Out a Loan in the Next Few Years
While you shouldn't make any sudden changes to your credit report when you are preparing to purchase a house, if home ownership is on your mind for the future, you may want to attempt to lower your debt-to-income ratio ahead of time before you even start the process.
Since refinancing your student loans can lower your interest rate and your minimum payment, it may help put future lenders at ease who assess all your current debts and how much you are spending on them each month to determine whether you can handle a mortgage, car loan, etc.
Plus, refinancing can help you get a handle on your student loan payments before you decide to take on any additional loans.
You've Increased Your Income by Landing a New Job
If your goal is to pay your student loans off quickly and you've recently received a pay raise or a new job that has increased your income, you may be intending to throw some extra money toward your loans each month. Paying extra on your student loan balance is an exceptional way to get rid of it quicker and reduce the amount of money you have to waste on interest payments.
To accelerate your payment amount even more, you might want to combine an increased payment amount with refinancing so you can make additional progress. A combination of increasing your income and refinancing can easily help you pay double or triple your minimum payment amount.
You Are Having Trouble Paying Your Private Loans Back After College
Not everyone wants or has the ability to pay back their student loans quickly. Taking your time while paying back your student loans can give you time to build a positive credit history and invest your money elsewhere, like in retirement, for the time being.
However, if you have private loans and are having a hard time budgeting enough money to meet the minimum payment requirements, you should look into refinancing. Refinancing your private loans with another private lender has much less risks than refinancing federal loans with a private lender.
Since private loan borrowers can't qualify for government relief programs like income-based repayment or deferment like federal borrowers, they have hardly anything to lose and much to gain by refinancing so they can afford their student loan payments.
You Are Going Back to School
If you are going back to school and planning on taking out more student loans, you may want to refinance the student loans that you currently have. While you may not be required to make payments on your loans while you are in school, you will most likely still be charged interest on your loans on a daily basis.
It would be wise to pay on the interest your loans accumulate while you are in school so you don't have to deal with a remarkably larger balance when you leave school; or worse, allowing the interest to capitalize and be added to your principle balance after your grace period. Since you can lower your interest rate by refinancing, you should look into your options so you can spend less money on any loan payments that are made and reduce the amount of interest that accumulates.
Refinancing can be a tough call to make at times. While it has a clear list of benefits, if you have federal loans, you may have to think twice and consider missing out on federal loan relief programs. The best thing to do is to assess your unique situation, educate yourself on the companies who offer student loan refinancing, and weigh the pros and cons to help determine how the outcome will affect you.