Our Simplest Guide To Student Loan Refinancing: Part IAugust 27, 2018
Student loan refinancing can seem like a terrible exercise in adulting, but if you’ve ever thought you’d rather get a root canal than learn about refinancing options, we’re here to save you.This is Part I of ELFI’s Simplest Guide to Student Loan Refinancing!
What Is Student Loan Refinancing?
Refinancing a student loan means you set up a new loan. That new loan pays off your old loan and sets you up with usually a new loan servicer, new interest rate, and different payments. The interest rate is based on current standard interest rates as well as your personal financial situation like your credit score and report and your annual income. It’s important to note that not everyone qualifies for student loan refinancing, so be sure to speak with one of our Personal Loan Advisors to see what your options are.
For example, maybe you have a mix of private and federal student loans that are higher interest than what you can currently get. So if you have $25,000 in loans and you’re paying anything from 5% to 8.75% interest, if you can get them refinanced at 4%, then you will save a lot of money by lowering the rest of your payments until the debt is paid off.
Information About Student Loan Repayment Plans
When should I change my repayment plan instead of refinancing?
Sometimes you may want to pay your loans off quicker or get a lower payment if your situation has changed (like you make less money now). Those can be reasons to set up a new payment plan. Depending on the type of loan you have, you may be able to set up payments that are based on your income or that change your repayment based on helping you pay off the loan faster, or draw out payments for a longer amount of time.
Make sure to check with your loan servicer to understand your repayment options. Federal student loans have several repayment options that can lower your payment or raise your payment to help you pay off faster, but private loan options vary.
Consolidation vs. Refinancing
Consolidating your student loans simply means combining several loans from different servicers into one loan. It’s pretty similar to refinancing. You can combine all or some of your loans, and you’ll get an opportunity to pick repayment options that can be more manageable than paying all of your loans separately. It’s especially helpful to consolidate when you have loans from many servicers, which can be confusing to manage.
- The interest rate you get from consolidating is based on an average of your combined loans, or a weighted average.
- Consolidating extends the life of your loans, which can be a way to get lower payments. You pay less each month, but for a longer period of time.
- Be careful consolidating federal loans into a private loan. There are some rights you lose under the federal student loan program if you switch your federal loans into private loans.
- Consolidating is one way you can get out of default and start making payments again to get in good financial standing.
With the Direct Loan Consolidation Program, borrowers can consolidate:
- Stafford Loans (Subsidized and Unsubsidized)
- Supplemental Loans for Students
- Federally Insured Student Loans
- PLUS Loans, Direct Loans
- Perkins Loans
- Health Education Assistance Loans
- And just about any other type of federal student loan
- State and private loans that are not federally guaranteed aren’t eligible for consolidation with this program.
A Note About Refinancing Student Loans Instead of Consolidating
Refinancing can combine your loans and get a new interest rate and payment terms, but when you refinance federal loans, you have to get a private loan. There is no refinancing option to be taken out through the government. Government loans, however, can be consolidated through Direct Loans.
There’s so much more we could say about refinancing your student loans! That’s why we’ll be continuing this guide in Part II, which will cover different types of student loans, what to take into consideration, and what to watch out for when refinancing.
Questions about Part I? Give us a shout here to talk more!