Did you know that student loan debt is one of the country’s fastest-growing types of consumer debt? And did you also know that student loans are a type of non-mortgage loan? A non-mortgage loan is a type of debt that you cannot pay off using your home equity. So if you’re like millions of Americans with outstanding student loans, you may wonder if it’s even possible to refinance them.
Definition of a Student Loan Refinance
What is Refinancing a Student Loan? Refinancing college student loans means that you get a new loan at a lower interest rate and use that money to pay off another loan (or loans) with a higher interest rate. Refinancing aims to save money on interest and fees by paying less than what you owe in the long run, often resulting in thousands of dollars saved!
It’s important to note that refinancing may only be right for some, so make sure you understand all the pros and cons before making any decisions about refinancing! Lantern by SoFi experts, states, “Refinancing also allows borrowers to alter the length of their loan.”
Consolidating Your Loans
You may be interested in consolidating your student loans if you have multiple federal loans with different interest rates.
Consolidating means combining all of your federal student loans into one new, single loan with a single monthly payment. You can use that money to lower the amount of principal (the amount owed) and reduce the interest you pay on each loan. If you have high-interest private student loans, it might be worth considering consolidating them as well—but they’re going to focus more closely on federal student loan consolidation here.
How Interest Rates Affect You
A student loan refinance can help you save money on your monthly payments, and it can also help you get a lower interest rate. However, as with anything else in life, there are tradeoffs. A lower interest rate means that you will be able to pay off more of your loan overall and spend less on interest over time.
However, one thing to keep in mind is that the interest rate on a refinance is fixed for only 6 months (or 12 months if you have excellent credit). This means that even if the economy improves during this period and rates go down overall, your new rate will not change unless you request another re-evaluation after those first six or twelve months have passed.
Benefits of a Student Loan Refinance
There are a number of benefits to refinancing your student loans. First, if you refinance your student loans, you can take advantage of lower interest rates and reduce your monthly payments. Also, if you want to consolidate your loans or get rid of high-interest rates, refinancing may be your best option.
Finally, suppose your payment is higher than what it should be due to high loan balances or high-interest rates on other types of debt (credit cards). In that case, refinancing may help by lowering both balances and payments so that it’s easier for you to meet them consistently every month.
The bottom line is that you need to be aware of the different types of student loans and the details of each one. Don’t just pick up a refinance because someone told you it would be easier or cheaper than other options available. Refinancing can help pay off debt faster, but only if done correctly.