When a student graduates from college, they walk away with a degree. All too often, they also walk away with student loan debt that has to be repaid somehow. Many students have to take out numerous loans, both federally and privately issued, that all have their own repayment terms and interest rates. So not only are these loans difficult to pay off, they can also be tough to merely keep track of. That’s one enormous contributing factor to the millions of Americans that have defaulted on their student loans.
Student loan refinancing breaks it down into easy-to-manage monthly payments with a single lender. For as great as this sounds, it is also important to realize that there are some perceived downsides to loan refinancing.
Continue reading on this site to see the pros and cons of consolidating federal student loans.
Reasons to Refinance Student Loans
Everything gets condensed into one payment.
It’s not at all uncommon for students to owe to six lenders or more in order to pay for their education. This means six or more monthly payments, interest rates and due dates to keep track of and pay in a timely fashion. If that sounds a bit intense, you’re not alone. Student loan refinancing requires a once-monthly payment to a single lender instead, making your debt easier to tackle.
You get to avoid going into default.
Lower monthly payments can save a person from defaulting on a loan. When this happens, the borrower’s credit score takes a tremendous hit. You can avoid this with refinancing.
You can repay on your terms.
As a part of the loan agreement, you can choose a fixed-rate (where the interest rate doesn’t change) or variable-rate (where the interest rate can either increase or decrease) loan. You can also decide how long you want the term of your loan to be, so that you can space out smaller monthly payments over a longer period of time or vice-versa.
Why You Might Not Want to Refinance Your Student Loans
Repayment begins right away.
Many loans will have grace periods wherein they will not expect you to make any payments toward the loan. This changes, however, when refinancing occurs. From the first day that you are entered into a refinancing plan, it will be on you to make repayments starting immediately.
You will probably end up paying more over time.
While a longer loan with smaller monthly payments could keep you out of default, it also means that you are going to be paying a lot more interest on your loan. Refinancing for a lower interest rate is certainly possible, but it isn’t likely. Most who refinance student loan debt will have more interest to pay over a longer period.
There are some pretty high requirements.
Many lenders that will work with you to refinance student debt will require that the borrower hold a degree and have a good credit score. This can be mitigated through the help of a loan co-signer, but not everybody has this option. Besides that, a co-signer with strong credit doesn’t necessarily mean that you will be approved for refinancing. Each lender has their own specific criteria that they deem acceptable.
