What does it mean to refinance a student loan? Student loan refinancing is a process that allows you to consolidate your existing student loans and save money on interest payments. If you’re someone who has had multiple student loans over the course of their education, refinancing might be worth considering. However, there are some pros and cons to consider before making any decisions. They’ll take an in-depth look at both sides and help you decide whether student loan refinancing is right for you.
What is student loan refinancing?
Student loan refinancing is the process of paying off your student loans with a new loan. A lender will refinance your existing loans by issuing a new one, which comes with a lower interest rate and/or monthly payment amount.
The goal of refinancing is to lower the cost of borrowing money—either by reducing the interest rate on your current student loans or extending their repayment period, thereby lowering monthly payments. In some cases you might even be able to pay off all your private student loans (those not guaranteed by the federal government) in one fell swoop!
Pros of student loan refinancing
- Lower interest rates. Because student loans are often unsubsidized, the interest rate is higher than what you would pay on a mortgage or other fixed-rate loans. Refinancing can lower your interest rate and make paying off your debt more manageable.
- Lower monthly payments. With a refinancing, you can lock in a new rate for the life of your loan—which could mean making smaller monthly payments than before and having extra money to put toward other financial goals like retirement savings or buying a home!
- Consolidate multiple debts into one loan with lower interest rates and fewer payments each month. Suppose you have multiple student loans at various rates. In that case, refinancing may allow you to combine them into one single payment with less hassle overall—saving both time and money as long as there aren’t any penalties involved when consolidating federal loans into private ones through refinancing.
Lantern by SoFi experts states, “Refinancing could result in sizable savings.”
Cons of student loan refinancing
- You can’t refinance a private loan. If you took out your student loans directly from a bank or other lender, then you will need more than refinancing.
- Neither can you refinance a consolidation loan? If your student loans were combined into one loan with another lender, it’s often even harder to get refinanced than if they were separate when you started paying them off.
- And finally, you can’t refinance a parent PLUS loan—the federal government makes that difficult because they don’t need your help paying for college!
How to refinance student loans
If you’re planning to refinance your student loans, here are some things to keep in mind:
- Look for a reasonable rate. A good place to start is by comparing rates on the student loan refinancing marketplace. You can also check out the guide to finding the best interest rate available on student loans.
- Shop around for the best deal. The process of refinancing your student loans will take some time and effort, so make sure that it’s worth it before you begin. Be sure not to refinance into a loan with a higher interest rate than you currently have.
Hopefully, this article has helped you better understand the pros and cons of refinancing your student loans. If you’re interested in finding out more about refinancing your student loans, check out other online websites. There are many articles that can help you determine if it is right for you.