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Refinance Your Student Loans, Especially In Today’s Low Interest Rate Environment – fixed rates of Credible and Serious from 2.5% or less, and variable rates from Serious and Loan key start at less than 2% – may seem tempting. And indeed, not only can you save money by refinancing student loans, but there are other benefits as well: “A key benefit and motivator of refinancing is the ability to consolidate multiple loan payments into one. alone, ”says Greg McBride, chief financial analyst at Bankrate. Adds Lauren Anastasio, Certified Financial Planner at SoFi: “It’s always worth researching your refinancing options if it’s been more than six months since your last check,” says Lauren Anastasio, Certified Financial Planner at SoFi. But just because the prices are low doesn’t mean you should refi. Here’s what the pros recommend you consider before refinancing your loan.
See what type of loan you have
McBride recommends refinancing student loans if you have a) a private student loan and b) your financial situation has improved since you took the loan. “If you now have better credit, lower debt, or higher income, any of those things could mean being able to take advantage of today’s lower rates to lower interest charges or even consolidate multiple loans into one payment, ”he says. (Looking to refinance your student loans? Fixed rates from Credible and Serious from 2.5% or less, and variable rates from Serious and Loan key start at less than 2%)
But, he adds: “Beware of refinancing federal student loans into private student loans and losing federal protections such as deferral, forbearance, or income-based repayment, unless a comparable benefit is only available on the new private loan. ” If you agree to forgo the protections available on federal loans and can get terms good enough to make it worth it, go for it. “But just walk in with both eyes open and know the tradeoff,” says McBride.
In addition, until September 30, 2021, payments on federal loans have been suspended, interest rates are at 0%, and collections on past due loans have been suspended. “Keep this in mind before you pay anything back or try to convert to a private loan,” says Lagrotteria.
Ask yourself these 5 questions
To make sure you reach your financial goals and don’t pay too much interest on your debts, you should take stock of your financial life every year, reviewing everything from your budget to your investments, says financial advisor Francesca. Lagrotteria from Payne capital management. “This includes visiting your debt, especially student loans, and asking you a series of questions about your current financial situation to help you determine whether or not you are a good candidate for refinancing,” says Lagrotteria.
These questions are: 1) Has my income changed? 2) Has my credit score increased? 3) Have I paid off other major debts? 4) Did I graduate? 5) Did I get any of the diplomas? “If you answer yes to any or all of these questions, then you might be a good candidate for refinancing your student loans,” says Lagrotteria.
Find not only the best rates, but also the best conditions
You should get quotes from several lenders, says Lagrotteria. And don’t neglect variable rates, at least if you think you can pay off your loans quickly: (Currently, Credible and Serious all offer fixed rates starting at 2.5% or less, and Serious and Loan key offer variable rates from less than 2%.) “Interest rates probably aren’t going to go up anytime soon, so you’ll have some time before this variable rate turns into an albatross and by then you may have paid off your balance significantly,” says McBride. .
To get the best rates, McBride says, “If your credit score has improved, your income has gone up, or your debt has gone down, all of that might be enough to get a better rate now than when you started paying off the loan.” ready.
Anastasio says it’s imperative to understand the fine print of the loan, including any hidden or stated charges, prepayment penalties, protections, or other factors that can increase the cost of the loan over time. And McBride says, “Always, always, always ask and review the fees. Comparing purchases for the best deal can also help you avoid fees.
Find the right co-signer
One thing to consider when refinancing is that banks will want to see a solid credit history before they approve you. “Some younger borrowers have poor or poor credit histories, which is why student loan refinancing applications often include a co-signer. It could be a parent or guardian or something with better credit that can secure the loan and get you approved, ”says Michael Kitchen, editor and student debt expert at Student loan hero. Like any loan, the potential downside of having a co-signer is that they become liable for the debt if the borrower is unable to pay. (Looking to refinance your student loans? Fixed rates starting at Credible and Serious from 2.5% or less, and variable rates from Serious and Loan key start at less than 2%)
Also see: Private student loan rates now start at just over 1%. Tempting, but here are 4 things to know before signing up