How Does Student Loan Refinancing Work?
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What Is the Downside to Refinancing Student Loans?
Access to federal deferment and forbearance. Private education loans, including refinance student loans, may have fewer deferment and forbearance options than federal student loans. After a three-year payment pause, the Covid-19 forbearance is set to end on Aug. 30, 2023. As a result, interest accrual on federal student loans will resume on Sept. 1, and payments will be due starting in October 2023. Access to potential federal student loan forgiveness. Refinancing federal student loans will remove your access to federal student loan forgiveness programs. Private education loans are not eligible for Public Service Loan Forgiveness or Teacher Loan Forgiveness. Access to income-driven repayment (IDR) plans. Most federal student loans are eligible for at least one of the four income-driven student loan repayment plans, which set a monthly payment according to income and family size. All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Private lenders do not offer these programs.
Is It Worth It to Refinance Student Loans?
What’s your credit score? Lowest advertised rates are generally available only to people with excellent credit scores. A solid loan cosigner may come in handy to not only qualify for refinancing but get a better rate than you could on your own. Lenders will collect information from you and your cosigner. Compare rates. Comparing rate estimates from different refi lenders can allow you to choose the most competitive rate. You also may have to decide on a fixed or variable rate. A fixed rate won’t change for the life of the loan. Once you accept the loan terms, the only way to change the interest rate on a student loan is to refinance. A variable rate fluctuates with the market. Considerations are the loan length, your financial picture, and your comfort level with variability. Do you want to shorten, keep, or extend your loan term? Choosing a short term of, say, five years may not decrease your monthly payments by much, but your interest savings could be substantial. (Another option is to choose a longer loan term but pay extra when you’re able to. Refinancing for a longer term may increase your total interest costs.) Which loans do you want to refinance? If you have several loans, you may not want to refinance all of them. Compare any protections and fees. Besides how much you’ll pay during the life of your loan, it’s a good idea to look at the loan terms. Does the lender offer student loan forbearance for borrowers undergoing economic hardship? Are there any late fees?
What Are the Steps in Refinancing?
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