New data shows the class of 2015 is graduating with the most student loan debt ever – topping out at an average of $35,000 per student. With the average new grad salary at just over $45,000, student loans can be crippling for many – especially for those that might not be able to find work right away.
However, some students are able to find relief by refinancing their student loans into something more manageable. Others haven't even considered refinancing because they don't know all the facts surrounding a student loan refinance. Here, we're debunking five common myths surrounding student loan refinancing.
Myth #1: You Don't Want to Take on More Debt
Yes, in most cases you will have to pay closing costs, but if you get a lower interest rate, you'll save thousands of dollars over the life of the loan. Some people mistakenly think refinancing means you can't afford your current payments so you need to extend your loan to lower your monthly payment. While this is true for some people, it's not like that for everyone. Refinancing into a lower interest rate and a lower term is possible – and it can save you money. Find out if you can save money with LendingTree's student loan refinance calculator.
Myth #2: You Don't Know Refinancing is an Option
To some people, it doesn't even occur to them that they can refinance their student loans. They feel that they took on that debt and they are now stuck with it. However, chances are interest rates have gone down since you originally took out your loans, and there's also a good chance your credit score has gone up. All of these factors can make for a better interest rate and lower your amount of debt for the life of the loan.
Myth #3: You Already Consolidated Your Loans and that's the Same Thing
Some students consolidate their student loans and think that they have refinanced. In fact, student loan consolidation and student loan refinancing are two very separate things. With a Federal loan consolidation, you are simply combining all of your loans into one, with the interest rate being the weighted average of all the loan's interest rates. Consolidating your loans with a private lender, however, is essentially a refinance, as they give you a new interest rate based on your credit score, debt-to-income ratio, and more. A student loan refinance actually refinances all of your loans into a new (hopefully lower) rate with new terms.
Myth #4: You're Stuck with Your Federal Loans
Nope, that is just not the case. Just because the Federal government doesn't offer student loan refinancing, doesn't mean that it can't be done. If you want to refinance your Federal student loans, including unsubsidized Direct Loans and Graduate PLUS Loans, you can do so through a private lender, such as a bank, credit union or online lender. Different companies will offer different rates, so make sure to comparison shop before making a decision.
Myth #5: You Don't Want to Lose the Benefits that Come with Federal Loans
Federal student loans do have advantages that private student loans do not – such as student loan forgiveness programs (Teacher Loan Forgiveness and Public Service Loan Forgiveness) and income-based repayment plans. If you're planning on taking advantage of either of those programs, you'll want to keep your Federal loans and not refinance to a private loan. However, if you have no plans on using either of those options, a refinance could be just what you need to lower your payment and reduce the amount you'll spend on repaying your student loans.
Look at all of your loans individually, including the terms and the interest rate. Comparison shop student loan refinance lenders to see if you can lock in a better rate on your student loans today.