should i refinance my student loans?
How Does Student Loan Refinancing Work?
Refinancing your student loans has multiple benefits, including lowering your monthly payment and saving thousands over the life of your loan. But is it the right move for you? If you feel you’re drowning in monthly payments, you’ve probably wondered, “Should I refinance my student loans?” Below, we’ll dig into the topic of refinancing student loans and cover why it could be a good idea for you!
When you refinance your student loans, you take out a new loan to replace any existing student loans you have open. You can refinance your student loans with the same lender you currently have — especially if they can offer a better rate based on your new credit and income. Your choice of a lender is up to you, and it’s a good idea to shop around to make sure you get the best deal! Before starting the search, get advice on managing post-graduation debt to set yourself on the right track towards refinancing.
When Should I Refinance My Student Loans?
Make sure refinancing is a good fit for you and your current financial situation. While individual situations vary, here are some scenarios where it’s worth exploring refinancing.
Lower Your Payment and Interest
Scoring a lower interest rate is one of the most popular reasons to refinance. Refinancing can drop fixed loans as low as 3.22%. If your interest rate is on the higher side (6% or more), you could save a significant amount over time by knocking off a few percentage points. You could also benefit from refinancing if you want to change your fixed rate to a variable one or vice versa. With a variable interest rate, your interest rate is tied to general market interest rates. As the market changes, your rates will too. This is unlike fixed rates, which stay the same over the life of your loan.
Improved Financial Situation
To qualify for the best refinancing rates, you'll need to prove that you're a low-risk borrower. Steady income and a strong credit score are the two main points working in your favor to help pay off loans faster. When you have extra funds – like money from a tax refund — save the cash! Put the funds toward paying off your refinanced loan with extra payments or a larger payment. This will reduce the principal balance you owe, so it will reduce your interest and the outstanding amount you have to pay back.
Have One Monthly Payment
Consolidation is a type of refinancing where you combine multiple existing loans into one. For example, you might have 7 separate student loans from different lenders, and you're hoping to group them all together with only one payment. This new payment is usually lower than the total of all your payments on your individual student loans. Combining your student loans into one payment gives you a fixed interest rate calculated by averaging all the rates from your previous loans. It’s easier to budget for one payment a month versus several.
Using A Student Loan Calculator
Using a student loan calculator to pay off your high-interest student loan debt makes it easy to tell how much you’ll save by consolidating or putting extra money towards your debt. To use it, input your current loan information (balance, interest rates, and current payment) and any additional funds you can put toward your current payment. When you click to calculate, it will show results like how much money you’ll save with one student loan payment and how much you could save on non-student loan debt.
Refinance With ALEC
If refinancing seems like a good fit for your situation, be sure to compare as many student loan refinance companies as you can to find the best fit for you. Keep in mind more than just the interest rates, but also repayment terms and any fees to be charged. As a credit union and non-profit organization, ALEC puts the needs of our members first and aims to provide you with the best rates and quality customer service. Read on below to discover more of your options when refinancing!