When Should I Refinance My Student Loans?
Americans are more burdened by student debt today than they have ever been. According to Lending Tree, 69% of college students in the Class of 2019 took out loans, and they graduated with an average debt of $29,000, including both private and federal debt. Meanwhile, 14% of their parents took out an average of $37,200 in federal parent PLUS loans.
Overall, about 44.7 million Americans owe a total of $1.71 trillion in student loan debt.
If you’re a member of this growing group, refinancing your student loans might help you get a lower interest rate or reduce your monthly payments, which could help you find yourself debt-free earlier than anticipated. There are, though, many factors to consider when examining your repayment options and deciding whether or not a refinance is for you. We outline a few of them below:
Do you want to bump up your payoff date?
Perhaps circumstances have changed in terms of your income, or you’d like to expedite the rate at which you will get out of debt. Refinancing can allow you to choose a shorter repayment term, and while this might raise your monthly payment, there is also a chance that you qualify for a lower interest rate, allowing you to put more of your money towards loan principal.
You are making multiple loan payments to different servicers each month
Keeping track of more than one student loan can be tough – I know from experience. Of course, you want to prioritize the right loan while making all of your payments on time. Refinancing can help simplify this process by combining all of your loans into a single loan that’s both easier to manage and possibly, advantageous to your repayment plan.
Is your monthly payment too much?
The monthly student loan payment is $393. If you’re finding yourself having trouble making ends meet, you could choose to extend your repayment term by refinancing, likely reducing your monthly payment in the process. Keep in mind that having a longer-term means you may end up paying more interest over time. This is, of course, the tradeoff for flexibility in the short term, and has become an attractive option for many Americans.
Keep an eye on the interest rate market
At times, interest rates can fall so dramatically that a refinance, even if it wasn’t on your radar, makes perfect sense. Personally, I fell into this category and took advantage of a rate drop that helped move me closer to full repayment by nearly a full year.
If you decide the refinancing your student loans is right for you, be sure to consider as many lenders as possible to ensure that you are paired with the repayment strategy that is right for you. It’s also important to remember that if you have a federal student loan and refinance to a private lender, you’ll lose your federal benefits and protections such as income-driven repayment and forgiveness opportunities. Service Credit Union’s partnership with Student Choice, a company that serves credit unions by offering fair-value student lending solutions, allows you to take control of your repayment plan. At Service CU, you’ll be able to refinance and consolidate your private and federal student loans (including PLUS loans) into one manageable loan, setting up one convenient payment, and potentially lowering your rate. For more information, visit servicecu.studentchoice.org.
