Get Closer to Financial Freedom with Student Loan Refinancing
Pretending your student loans don’t exist won’t make them go away. As the saying goes, ignorance may be bliss, but it won’t get you closer to financial freedom.
Last year the average student loan debt in Pennsylvania was $32,698. With an average interest rate of 5.8%, a borrower would pay over $9,600 in interest over 10 years. That’s a lot of money and a good reason to consider refinancing. When you refinance, you “trade in” your old loans and get a new one that fits your life better. Your new loan could save you money or make your monthly payment manageable.
Before you apply to refinance here are some of the options to consider:
Lower Interest Rates
Most lenders tend to offer both fixed and variable interest rates. The variable rate may be the lowest, but don’t forget that variable means the interest rate may change, which will impact your monthly payment. A higher rate will mean a higher monthly payment. The fixed rate will be higher, but your payment amount will not fluctuate.
“I’d suggest shopping for the best loan terms before choosing a lender,” Ryan Keene, Ardent Credit Union’s VP of Lending, said. “Most student refinance lenders allow borrowers to check their interest rate before applying without impacting their credit.”
Lower Monthly Payments
Sometimes the monthly payments are just too much, even with a lower interest rate. In that case, it makes sense to stretch out the length of your payment plan. The result is smaller monthly payments over a longer timeframe. Many federal and private student loans offer a 10 to 15-year repayment plan. Some lenders will refinance your loan for a term up to 20 years, which may create a noticeable drop in your monthly payment.
Removing the Cosigner
In some cases, parents or legal guardians were required to cosign for the initial student loans. Over time this can cause tension between the student and their parent or guardian. When you refinance, you may be given the option to release the cosigner from the loan agreement.
Consolidate into One Payment
When you refinance your student loans you are combining all your federal and private loans into one new loan offered by a private lender like Ardent Credit Union. You’ll have only one loan to pay each month, which will be easier for you to track and manage.
Refinancing can be a big relief for many, but it isn’t for everyone. It’s important to weigh the benefits of refinancing against what you may lose. For example, refinancing your federal loans could mean giving up income-driven repayment plans and loan forgiveness.
If you decide to apply, the lender will review your credit score, income and employment history. Typically, the ratio of your debt to your income will need to be 45% or lower and your credit score will need to be at least 680 to qualify. You’ll also be required to prove that you’ve graduated to be eligible for refinancing with most lenders.
Don’t put off investigating your student loan refinancing options. By taking action, you could put yourself in a better situation, which will get you closer to financial freedom.