Many people struggle with student loan debt and it may stop them from pursuing other financial goals. While there are ways to manage student loan repayment, refinancing student loan debt is one way to create a more manageable debt repayment plan.
Whether you have federal or private student loans, refinancing may be a feasible option for lowering your interest rate, changing your repayment term, or both. The benefits of refinancing are numerous, but it is crucial to understand how this move can impact your financial life in the short and long-term. Before making a commitment to refinance student loans, it is necessary to understand your options.
Use the student loan refinance calculator below to help you consider what refinancing would mean in your situation.
On this page:
- How to Use This Student Loan Refinance Calculator
- When to Consider Refinancing Your Student Loans
- Is Student Loan Refinancing Right for You?
How to Use This Student Loan Refinance Calculator
The student loan refinance calculator is a simple tool that allows you to compare your current student loan terms with refinancing options that may be available to you.
Simply enter your current loan balance, the interest rate on that loan, and the remaining loan repayment term. Then, input the information about your student loan refinance offer, including the new interest rate and loan term. The calculator then generates your interest rate savings, the difference in your monthly payment, and your term length reduction or increase if applicable.
Also, you’ll see the total interest you’d save with a refinanced student loan along with the total cost savings.
These details can help you evaluate whether or not student loan refinancing makes financial sense for you.
When to Consider Refinancing Your Student Loans
You Will Receive a Lower Interest Rate
If you are thinking about refinancing your student loans, you have several things to consider before making the leap. First, a refinance usually only makes sense if you are offered a lower interest rate than what is on your current loans. If not, it is likely not worth going through the process.
You Meet the Eligibility Requirements
Also, consider if you will be approved for refinancing. Private lenders offering student loan refinancing want to know that they are taking on an acceptable amount of risk with a new borrower. This means you need to have strong credit, a high credit score, and in some cases, meet minimum income requirements. Without these qualifications, you are likely to not be eligible for a refinanced student loan without the help of a co-signer.
You Don’t Depend on Federal Repayment Plans or Benefits
You also need to consider the downsides of refinancing when considering federal student loans. There are certain benefits you have with federal loans that you will not get with private refinanced student loans. These include access to income-driven repayment plans, deferment and forbearance opportunities, and possible eligibility for student loan forgiveness.
Most private lenders do not offer these protections, regardless of how strong of an applicant you may be. For these reasons, think seriously about your ability to repay a private refinanced student loan for the long-term before refinancing.
If you are simply looking to consolidate your federal student loans to make them more manageable, you could look into federal student loan consolidation as an alternative, though it won’t save you any money.
Is Student Loan Refinancing Right for You?
Not everyone benefits from a refinanced student loan. However, there are certain factors that can help drive your decision in addition to the calculator results above.
Are Your Current Loans Manageable?
First, if you have been paying on your loans for a period of time but still find them unmanageable, refinancing may be a good option. The process allows you to potentially lower your interest rate or extend your repayment term, both which can be beneficial in creating an easier time with repayment. However, if you are not achieving these goals with a refinanced student loan, you may be better served by looking at alternatives.
When you refinance, you can also consolidate multiple federal and/or private student loans into one new, more manageable loan.
How Will it Impact Your Credit Score?
Next, if you are concerned about the impact refinancing your student loans will have on your credit, you’re in luck. Applying for a refinanced student loan has a small influence on your overall credit score.
A new inquiry is placed on your report, for as many lenders as you submit applications to, but an inquiry does not change your credit score by more than a few points. Additionally, because a refinance loan uses new loan funds to pay off other balances, you will not see an impact from taking on new debt. The loan amount remains the same before and after a refinance – it is simply structured differently.
Finally, it is crucial to evaluate the offer provided to you by the new private student loan lender. Although the interest rate may be lower or the repayment term may be extended, there may be other factors influencing the total cost of your loan.
Be sure to check if there are application or origination fees, prepayment penalties, or other charges that can increase the cost of your loan. Also, see if the interest rate offered is variable or fixed. A variable interest rate may initially be lower, but in a rising interest rate environment, it can increase over time. That means your loan payment will increase as well. A fixed interest rate may be higher than a variable rate initially, but it offers predictability.
Many people consider student loan refinancing with a private lender as a viable option for better managing their student loan debt. Refinancing may make it easier to pay off student loan balances quicker, especially when borrowers enjoy a lower interest rate.
Be sure to understand how student loan refinancing will impact you now from a monthly payment perspective and how it will influence your total loan cost based on the new loan term and interest rate.
Use the student loan refinancing calculator above for information you need to make an informed decision about the benefits and downsides of refinancing your student loan debt.
Author: Melissa Horton
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