Refinancing Student Loans
Refinancing Student Loans
Refinancing Student Loans
Setting Goals when Refinancing Student Loans
When I first started out to find ways to refinance my student loans, I knew that I had to sit a goal. I had a friend whose goal was consolidation of student loans into one so that she would only have one monthly payment instead of three. After giving it some thought, I decided to make my goal to cut my monthly payments by 35 percent because I was having a hard time making the $250 student loans payment. Paying off student loans quickly was my ultimate goal. There are other important things to consider when refinancing student loans regardless of the lending institution you will be working with.
Qualifications for Refinancing Student Loans
One of the major qualifications when refinancing student loans is that none of the outstanding loans can be what is known as “In-school” status loans. This means that the person cannot be presently paying for their education with an active student loan.
It also must be kept in mind that a lot of lending institutions set a minimum balance of the loan or loans. This balance figure tends to vary from lender to lender so it is a good idea to inquire what institution’s minimum balance is before working with them.
Two Methods of Refinancing Student Loans
1. Lower Interest Rate Option – When refinancing student loans, there are basically two ways to reduce your monthly payments. One way is by getting a better or lower interest rate and the second way is by extending the duration time of the loan. A lot of people attempt to get their interest rates as low as possible. This way they will end up paying much less in total interest costs at the end of the loan.
2. Extending Loan Term Option - If you can’t get the interest rates lowered, then the next option is extending the term of your loan or loans. This option will lower your monthly payments. The negative side of this is that the dollar amount you pay for interest will be much higher over time. You should take your time when deciding which of these two options is best suited for you because it can cost you a lot of money over time if you make the wrong choice.
Federal Loan vs. Private Loans in Refinancing Student Loans
Some student loans are Federal loans or government guaranteed loans. Others are private loans or granted by private, commercial institutions. Federal student loans are structured so that the interest rates are much lower than that of private loans. In effect, private loans are personal loans that are made with the assumption that the funds will be used to finance your college education. When refinancing student loans, be sure that Federal and private loans are refinanced separately. Consolidating these loans into a single loan may result in you paying much more than you really have to.
What Role does Credit Scores Play in Refinancing Student Loans?
Another important factor to consider before refinancing student loans is to be sure that your credit or FICO score is high enough to ensure you can get favorable interest rates. It’s like when you finance a car or home, the higher your credit score, the better interest rate you will get. Get a free copy of your credit report from the three major credit reporting agencies. Review them with a fine-tooth comb to make sure that there are no errors on them. If you find errors or inconsistencies that can cause you problems, take the time to make some phone calls and get these items cleared up as soon as possible. This will pay off in spades because you will benefit greatly from having lowing interest rates on your refinanced loans.
Refinancing Student Loans Summary
In the end, when refinancing student loans, your goal or objection should be to keep as much of your hard earned money as possible now that you are out of schools and working. It is wise to do all that you can to pay off your loans as soon as possible at the lowest interest rate. This will leave you more money to enjoy other thing in your life.
Be wise when about investigating all the choices available so that you can make informed decisions when refinancing your student loans. You never want to be bogged down for the rest of your life paying back huge, high interest student loans. Refinancing student loans is not difficult to do when you sit a goal and go do it.
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