The following is a guest post submitted by a fellow writer who’s committed to helping young graduates refinance their student loans:
Recent Grads! Stop Overpaying on Your Student Debt. Refinance Already
If you are like many students in the process of paying off your loans, you might be suffering in some ways and working harder than ever. For instance, you may be buying Ramen Noodles instead of lunch meat. All for that student loan payment.
Yes, it is true that doubling up on payments will reduce the principal. Doubling payments will also reduce the total interest that you pay because you’re shortening the life of the loan by paying more.
But what if you could pay less money overall because you reduce the total interest?
That probably sounds like a good idea. By refinancing your student loans, you can reduce the interest, which reduces the overall amount you owe. Even if you still want to double up on your payments each month, you will be paying less in the end.
Questions to Ask Yourself Before Refinancing
Of course, refinancing student loans is a major decision. That is why it is good to ask yourself these three questions:
- Why am I refinancing student loans? There are many reasons. The first is to lower your interest rate. Refinancing can also make your repayment process much simpler because multiple loans can be consolidated into a single payment instead of several payments. Refinancing student debt can also remove a cosigner. It is good to sit down and make sure refinancing is the right decision for you.
- Which lender is best? It is good to shop around for lenders, especially when it comes to refinancing private loans. For federal loans, there are other options for consolidating loans. For private, you want to look at different lenders and compare their rates and repayment terms. Never rush into a decision, because you don’t want to learn later that there was a lender that would have cut you a better deal. It can be harder to refinance again too soon after the first refinancing.
- Will my employer give me some help? When you are considering refinancing your student loan, check with your employer and see if there are any programs that will pay part of your student loans. If your employer has a program, then you can use it to pay down the loans before refinancing so you can increase your chances of approval by refinancing a lesser amount. Employer programs will help after refinancing, but the goal is to minimize the amount of the loan, which is better for your credit score. A lesser loan amount contributes to a lower debt-to-income ratio. Doctors, teachers, and lawyers tend to be candidates for student loan forgiveness programs, which is worth researching.
You’re not limited to these three questions, so make a list of questions to ask yourself and lenders so you know you are doing the best thing for you.
Choosing A Repayment Option Post-Graduation
The federal government has a number of programs that base repayments on income. This can lower monthly payments, making the loans more manageable for college graduates. The federal government has the Income-Contingent Repayment (ICR) program, the Income-Based Repayment (IBR) program, and the Revised Pay As You Earn (REPAYE) program.
Each of the federal income-based programs are based on need, so not everyone will qualify. Most federal student loan borrowers are able to take advantage of other programs. It may not pay for a person to turn to a private lender to refinance student loans. This could actually raise rates, and many of the federal loan benefits are lost, like the fixed rate and eventual loan forgiveness.
The ideal thing for you to do when you have multiple federal student loans is to have them consolidated into a single payment. This is very similar to refinancing because all loans are placed into one account, which means just one payment. These are called Direct Consolidation Loans. The Federal Student Aid department outlines in depth what can be consolidated, what can’t, and when you can consolidate.
To consolidate, you must have at least one FEEL Program Loan or Direct Loan, the loans must be in a grace period or in repayment, the loan cannot be a previously consolidated loan unless there is an additional eligible loan added (exceptions can be made for FEEL consolidation loans), and approved repayment arrangements must be made on a defaulted loan to consolidate. The repayment arrangement can be the ICR, IBR, or REPAYE program.
Overall, you have options when it comes to refinancing private or federal student loans. Shopping for these options is an important part of the refinancing process. Oftentimes, a resource can be helpful; in fact, this is the sort of thing that I am trying to help people with. You can find a resource on refinancing on my site – The Student Loan Report. You don’t have to be stuck paying a too-high rate. You also don’t have to sacrifice the quality of your dinner to repay your loans. You have options, so it is important that you use them so you can save money.
Drew Cloud is the Founder of The Student Loan Report – a site dedicated to keeping student loan borrowers and their families up-to-date with the latest student loan news and information.