Refinancing Your Student Loans

Refinancing Your Student Loans

As the    federal pause on student loan payments comes to an end, it’s wise to create a plan for repaying any outstanding student debt you may have. Many college graduates and parents choose to refinance their debt, combining multiple outstanding student loans (private and/or federal) into a single new loan, for any of a variety of reasons.

Depending on your specific circumstances, student loan refinancing may offer you:

• Convenience – Making one payment versus multiple payments each month can save you time and make budgeting easier.
• A lower interest rate – Shopping for a new loan gives you the opportunity to compare interest rates. Depending on the rates being applied to your current loans, you may be able to find a lower rate for your new loan. Refinancing also gives you the option of choosing a fixed or variable interest rate to suit your particular needs. (With a fixed rate, the interest rate charged on the loan’s outstanding balance is locked in throughout the term of the loan. A variable rate can change based on changing market interest rates.)
• Faster payoff – If paying your debt off faster is your priority, refinancing may provide you with the option of structuring your loan with a shorter term. For example, if you are refinancing two loans that are on track to be paid off in six and seven years respectively, you might choose a new loan with a five-year term. Your monthly payments will be higher, but you may save money by paying less interest over the life of the loan.
• A lower monthly payment – Conversely, if lowering your monthly payment is top of mind for you, you may opt to lengthen your repayment term. Say you have those same two loans in the example above. You might choose to refinance with a 10-year loan to give yourself more time to pay off the debt. Just be aware that, while you may have more money in your pocket day-to-day in the short term, you are likely to pay more for the loan in total, since it will incur more interest over time.

How student loan refinancing works

When you consolidate and   refinance your student loans, you are opening a new loan to pay off the balances of those existing loans, so you can close them out and instead have just one loan payment each month. Refinancing without consolidation entails opening a new loan to pay off a single existing loan, typically because the interest rate or monthly payment of the new loan will be lower.

Is student loan refinancing right for you?

The more you know about your outstanding debt, the easier it will be for you to determine whether consolidation and refinancing could help you reach your short- and long-term financial goals. Make sure you have a clear understanding of each of your student loans, starting with knowing which type(s) of loans you have: federal or private.

Federal loans are fixed-rate* loans issued by the U.S. Department of Education. They are categorized as direct subsidized, direct unsubsidized and direct PLUS loans. If you’re unsure as to whether you have federal loans, you can check the Federal Student Aid website, studentaid.gov, logging in using the Federal Student Aid (FSA) ID you created when filing your Free Application for Federal Student Aid (FAFSA®).

Note: Federal loans offer certain benefits — favorable repayment options, loan forgiveness options, extended loan terms, etc. — that you may lose if you refinance with a private loan.

Private student loans are issued by banks, credit unions and other lenders. They require a credit check and typically offer the option of fixed or variable interest rates, and repayment terms of five to 20 years. If you have any private student loans, you are likely receiving monthly bills or statements from your lender, or perhaps you have an online account. If you decide to consolidate and refinance your student loans, it will be with a private loan.

Next, check the repayment term on each of your loans, the amount of time you have to repay each; and the interest rates or annual percentage rates (APRs), the percentages applied to your balances that represent the price you pay to borrow the money. Add up your outstanding debt to see what size loan you’ll need, and add your minimum monthly payments to see your total monthly commitment.

Equipped with this information, you can compare loans to see if refinancing could be beneficial for you.

What to look for in a refinance loan

Once you know the scope of your financial commitment and you have solidified your financial goals, look for the private student loan that helps you achieve those goals. Here are some loan features you may want to prioritize:

• Flexible rates and terms – Does the lender provide flexibility so you can choose to either pay your loan off quickly or keep your monthly payments as low as possible?
• A discount for automated payments – Dollar Bank and some other lenders offer an interest rate reduction when you set up recurring payments. Automating your payments also helps you make your payments on time, every time, so you never need to worry about incurring late charges.
• Loan amounts that meet your needs – Remember that private loans are subject to credit approval, so you may need a cosigner if you haven’t had a chance to build strong credit yet (many students and recent graduates are just beginning to build their credit history).
• Support when you need it – Even if you plan to make your loan payments online, make sure your lender offers knowledgeable, friendly customer service when you need it.

To learn more about student loan refinancing options, visit Dollar.Bank/StudentLoans or call 1-888-549-9050 Monday - Friday, 9 AM - 8 PM. A representative can help you compare rates and terms, and calculate how much time or money you may be able to save by consolidating and refinancing your student debt. 

Visit Be Dollar Wise often for resources and more tips on managing your money and achieving your financial goals.