If you have a large amount of student loan debt, refinancing the debt may be an option you want to consider. However, there are some downsides to refinancing your loans. Here are some factors to consider when refinancing student loan debt.
Federal Verses Private Student Loan Debt
If you have federal student loans, you do lose all of the protections offered by the federal government for these loans when refinancing with a private student loan company. This means, you would not be eligible for the Student Loan Forgiveness program or many of the payment plans offered through federal loans such as Income Based Repayment, Income Contingent Payment, and Pay as You Earn. However, if your goal is to pay off the student loan debt as quickly as possible and you do not need these protections, you may want to consider refinancing.
Lower Interest Rate
When paying off student loan debt, your interest rate affects how quickly you pay off the debt. If you have a really high rate, then most of your payment is going towards the interest, not the principal. This means, you are paying down the actual balance at a much lower rate. When I decided to refinance my student loan, I had a rate of 9.99% which is really high even for a private student loan. However, with refinancing, I was able to get that rate down much lower.
One reason to consider refinancing your student loan debt is the payments. I paid “interest only” payments for a long time on my private student loans with Navient. Then, I realized the payment was going to balloon to a very high amount in 2017. We needed a lower payment in order for our budget to balance. In addition, we needed a lower payment before I could quit my job to be a stay at home mom. Refinancing lowered our payment by almost $400 a month which was amazing.
Fixed Interest Rates
If you have a variable rate with your student loan lender, consider refinancing to get a fixed rate. Fixed rate means the rate stays the same for the entire life of the loan. Variable rate means the rate can go up and down with the market. I had a variable rate on my loans. This meant I had no control over the rate going up very high. By refinancing, I got a fixed rate and it was much lower.
Paying off student loan debt can be very exhausting because you feel like you will never see the end. However, by refinancing, you can get better terms to aid in the process of paying off your student loans. This can allow you to pay down the debt faster, but also make your budget more manageable. If you are interested in getting quotes to see what your new payment could be, click here to visit Credible. This is my personal referral link.
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