Advertising
Advertising

When Is A Good Time To Refinance Your Student Loans?

When Is A Good Time To Refinance Your Student Loans?

Student loan debt. Those three words are more important to people in their 20’s and 30’s today than any prior generation. The cost of education has continued to rise alongside a growing expectation that most individuals seeking decent salaries should go well-beyond a high school diploma.

It’s increasingly common now to hear presidential candidates address student loans, and eventually one president will propose a comprehensive solution, especially as recent undergraduates and post-graduates begin their careers, start families, and, above all, become the primary voting bloc.

Federal Refinancing Isn’t An Option…Yet

One solution that has been proposed is a federal refinancing option. If you are unfamiliar with the term, refinancing essentially means getting a new interest rate and new repayment terms. Unfortunately, that doesn’t exist for federal student loans now, and may not for a while.

There are, however, many for-profit companies that offer refinancing for those with private loans, and for those with federal loans who are willing to go with a private company to get a lower interest rate.

Should I Refinance My Student Loans?

You may be one of those graduates wondering if now is the best time to refinance your student loans. The answer is both short and long: it depends. Refinancing could be a smart move, particularly for students who have private loans with high interest rates. Federal student loans can’t be refinanced with the government and therefore require you to go private.

Nevertheless, although you may successful lower your monthly payments, no private company offers the generous terms the government offered when you took out the loan. Remember, the federal government is a non-profit entity, whereas private lenders are for-profit.

Advertising

How To Determine If Refinancing Makes Sense

Figuring out whether refinancing makes sense at first requires a bit of math, but there are many sites out there that can help you see the different ways you can approach repayment.

If you think about your student loan as one large payment (with principal and interest included) instead of many monthly payments, it’s easier to understand why refinancing may be useful for some borrowers.

To put it simply – each month, interest on the loan is calculated and added to the principal. When you make a payment, you pay off the accrued interest plus a small portion of the principal. Sometimes, those with a particularly high interest rate can feel like they are paying and paying and their balance never seems to budge.

When that interest number goes down, the amount you owe is reduced a little as well. At the most basic level, the benefit of a lower interest rate is that, over the life of the loan, the total sum of all your payments will be smaller, thus saving you money.

Factors To Consider Before Refinancing

Once you know what your rate options are, how do you determine if now is the right time to refinance your student loans?

Employment

Advertising

First, you should take honest stock of your current employment status and your future earning potential. These are important factors, because refinancing and exchanging a federal loan for a private one can remove some flexibility in your payment schedule. Stability in a current position as well as the likelihood of a promotion with salary increases work in your favor when refinancing because they allow you to plan with confidence.

Terms and Conditions of the New Loan

If you feel like you could be laid off or terminated in the near future, or if you are seeking a career change, it might not be a great time to refinance. One way that a new set of terms could be less forgiving than your previous ones is that you might not have the forbearance or deferment option. Forbearance allows you to temporarily postpone or reduce your student loan payments.

Another factor may be that the lender requires a loan to be paid off in 10 years instead of 20. Even if you get a lower interest rate, the accelerated payments will result in a higher monthly expense.

Your Credit Score

When considering the option of refinancing your student debt, it is important to research your credit score. If you’re in a good credit score range, you will be eligible for the lender’s lowest interest rates and most generous terms. On the other hand, a bad credit score might force you to hold off until your credit is better.

Advertising

Fixed vs Variable Rates

Also, take some time to mull over your fixed versus variable rate options. Fixed rates are great if you lock in a low one, meanwhile variable rates are adjustable. Given that we are in a rising interest rate environment, your variable rate is likely to increase significantly over time, so it is best to focus on refinancing for the lowest rate possible.

Read The Fine Print

If you have federal loans, and refinancing them into private loans seems to make sense after the aforementioned considerations, be careful and read the small print. There are a number of programs and perks that came with your federal loans that don’t apply to private loans. These include income-based repayment and loan forgiveness.

For example, if you are employed by a non-profit and you are working toward complete loan forgiveness in 10 years, remember that once you refinance your federal students loans to become private, you will lose that opportunity. In fact, your current employer may even have a program to help pay off your student loans that you aren’t even using yet.

Long-Term Financial Goals

Advertising

After you do research and know your options, think about your 5 and 10 year plan, both personally and professionally. If you are in a place in your life where you anticipate some bigger purchases, such as a house, car, or business, you should factor those potential buying decisions into the equation. And don’t forget – it’s always best to start saving for retirement early, even if you have to invest with little money.

Similarly, marriage and children maybe critical elements of your future financial planning. The extra few hundred dollars a month that you might be putting toward student loan repayment might be better spent on a down payment for a home or toward saving for costs associated with a growing family.

Final Word

If refinancing makes financial sense for you, do it sooner rather than later. Each month that you pay your old, higher interest rate is another month that money could have been allocated to something else other than an inflated interest expense. If, after researching your options, you decide that refinancing your student loans might not be a smart move right now, there are still things you can do to make good financial decisions.

If you can afford it, pay more than your monthly payment. The more you can put toward prepayment, the more your principal will be reduced each month and the less you will pay in the long-term.

The choice of if or when to refinance student debt is a personal one. This decision is best made by weighing the pros and cons of all options. You can control some things in life, but not everything, like interest rates. With dedication to smart research and a bit of good timing, you could be on your way to a lower monthly payment that could save you thousands in student loan interest.

More by this author

Gary Dekmezian

Entrepreneur

Men’s Fashion Trends of 2017 Top 5 Men’s Fashion Trends of 2017 How To Make A Good First Impression The Pros and Cons of Popular Blogging Platforms How Do I Choose The Best Hairstyles For Me? The Best Ways to Build Credit Fast

Trending in Money

130 Fun Things You Can Do This Summer Without Spending Much 235 Real Ways to Actually Make Money Online 3How to Make Money with a Blog (According to 23 Successful Bloggers) 4This List of 50 Low-cost Hobbies Will Excite You 530 Fun Things To Do With Your Friends Without Spending Much

Read Next

Advertising
Advertising

Last Updated on August 15, 2018

30 Fun Things You Can Do This Summer Without Spending Much

30 Fun Things You Can Do This Summer Without Spending Much

Summertime can be a real strain on your wallet. The sun is out, there are people to see, places to be; it’s no wonder you might be short of funds during these sunny months. Not everything has to cost you an arm and a leg.

Take some time to go through this list of 20 cheap summer activities and make some realistic goals to complete as many as you can.

Video Summary

1. Visit a strawberry festival

Summer is prime time for tasting strawberries. More often than not, an area that grows strawberries will have a strawberry festival. Indulge yourself in strawberry pies, jams, cakes and more!

2. Have a picnic

Take your partner or your family to the local park and enjoy a relaxing picnic. Designate each person to bring one food item of their choice to add to the fun.

3. Camp in your back yard

    The summer heat can sometimes make it hard to sleep. Why not enjoy the heat outside in the yard? Pitch a tent or gaze into the night sky.

    4. Take long walks

    Discover something new where you live. Take the afternoon off from your chores and go for a long walk. You may be surprised by what you discover.

    5. Break a world record

    Breaking a world record doesn’t have to be time-consuming. You could even break one on your lunch hour. Give it a go!

    Advertising

    6. Go on a bike ride

    The number of bike paths on roads in big cities has increased dramatically over the years. Take advantage, and enjoy the summer breeze.

    7. Join a gym class

      The gym is not everyone’s idea of a good time, but why not go with a friend a join a class? Spinning, yoga and step classes are always more fun with friends, and a lot of gyms allow you to pay-as-you-go.

      8. Find a new hobby

      The summer is the perfect time to find a new hobby. Serotonin (our body’s natural “happy” hormone) is produced by the sunshine and will be at a yearly high, which is great for when we want to tackle something new.

      9. Join a sports team

      Not all sports teams are competitive and require huge amounts of your time. Join in the fun with like-minded people, get fit, stay healthy and make some friends along the way.

      10. Make a slip ‘n slide

        Gather your friends, some plastic sheeting, a hose, washing up liquid if desired, and make a huge slip ‘n slide just like these guys. Granted, yours won’t be as big, but you get the idea… it’s fun!

        11. Make a treasure hunt for your kids

        Today’s digital world sees our children more often than not playing inside than outside. Why not create a sense of adventure by making a treasure hunt? Only rule? It has to be outside.

        Advertising

        12. Visit a free festival

        Towns and cities are awash with free festivals, with themes from film to science. Scout your local area and discover something new.

        13. Visit the zoo

          Let’s face it: we love animals. While browsing news websites and social media networks you’re bound to come across a few pictures of cats. Take a trip to your local zoo for a better experience.

          14. Take a road trip

          Enjoy the open road with a few friends and take a road trip somewhere–anywhere. Just go out and enjoy the sunshine!

          15. Play ultimate frisbee in the park

            Frisbee is always great fun down the park, but why not turn it into more of a competitive sport by playing ultimate frisbee?

            16. Make your own ice cream

            Ice cream is a very versatile dessert. Make a sandwich, enjoy a cone, or simply just enjoy a bowl full. Better yet, making your own ice cream allows you to create any flavor you want.

            17. Invite your neighbors over for a BBQ

            Advertising

              When was the last time you invited your neighbors over? Do you even know them? Now’s your chance. Just ask each person to bring a food item so costs don’t mount up for you.

              18. Get a summer job

              For many students, summer is the time for relaxation and fun. But who said earning money and being productive isn’t fun? You only get out what you put into a situation.

              19. Attend a charity event

              Attending a charity event is a great way to raise funds and awareness for a cause, meet new people, and generally have a good time. Search for your local charity event today.

              20. Visit a national park

              National parks are a great way to explore nature and learn something new. You could even volunteer and make a difference in helping restore natural habitats.

              21. Visit your local comedy club

                Local comedy clubs are extremely underrated. They are cheap to attend and no doubt you’ll have a barrel of laughs.

                22. Make your own hammock

                  Hammocks are very relaxing, are perfect for summer afternoons and are surprisingly easy to make.

                  Advertising

                  23. Read in your new hammock

                  Now you have your very own hammock, the only thing left to do is enjoy it. Grab your favorite book and read to your heart’s content.

                  24. Watch a movie outside

                  Movies are great. Relaxing outside in the evening is great. Put them together and you’ve got a perfect combination. In D.C, Maryland and Virginia this summer, for example, you can enjoy a huge number of movies outside.

                  25. Take a hike

                    Hikes are a great way to keep fit and see more of Mother Nature. There are countless trails available for you to explore. Why not try some this summer?

                    26. Learn how to fly a kite

                    As a child, you probably had a kite and haven’t touched it since. Why not dust it off and attempt to fly it? It’s tricky, but well worth the challenge.

                    27. Work out at the park

                    American cities are full of parks with ample space for a work out session. No doubt you’ll be happier to work out in the sun rather than a crowded gym.

                    28. Take your dog to the beach

                      One of the many joys of owning a dog is taking him or her for long walks during the summertime. This joy is enhanced when visiting the beach, for both you and your dog.

                      29. Make a summer smoothie

                      Healthy, delicious and perfect for the summer. Not only that, there are countless recipes ready for you to try.

                      30. Attend a free yoga session at the beach

                      No experience needed and all skill levels are welcome. Take yourself and a buddy down to the beach and try some yoga. You’ve got nothing to lose!

                      Read Next