Student Loan Refinancing | Loan Consolidation. If you are dealing with multiple student loans then the combination of multiple loans into one, can simplify your debt.This means instead of having track record of numerous bills, you would have to make only one payment for a single loan.
Student Loan Refinancing | Loan Consolidation
There are two types of approaches to this, first type of approach is Direct Consolidation Loan and the other is Student Loan Refinancing. First, one we discussed in our previous article and here we will discuss about the second approach.
What is Student Loan Refinancing ?
Student loan Refinancing is similar to refinancing your auto loan or mortgage. To refinance your federal and private Student loans you will have to get help from a private lender. Students face lot of problems with multiple student loans and hence multiple interest rates. So, by refinancing multiple student loans into one will lower your interest rate. Lower interest rates means you can save thousands of dollars and get out of debt faster.
Refinancing also allows you restructure your debt by choosing a new repayment plan. If you have decent credit and steady income, you can also pay your loan off fast. Like any form of debt, your aim with a student loan should be to pay your loan at low interest rate as soon as possible.
How Student Loan Refinancing Works ?
Firstly, you have to find a private lender willing to refinance your private student loans. If you have taken private loan, you will no longer be eligible for federal repayment plans, such as income-driven or public service loan because most private lenders don’t offer these plans. So, go for turning any federal student loans into private ones through refinancing only if you are confident about your ability to keep up with repayment plans, as you will no longer have access to federal protections.
Federal student loan borrowers have access to a number of repayment plans which includes income-driven plan. Income-driven plan allows you to make consistent payments for 20 to 25 years. Federal student loan borrowers are also eligible for deferment and forbearance options. These options put student loan payments on pause if you are not able to make your monthly payments. Once you refinance your federal loans into private loans, you are out of the federal loan system. There is no way to re-convert a private loan back into a federal loan.
If a federal student loan borrower refinances, he loses following benefits:-
- Repayment plans
- Default Rehabilitation
- Potential Student loan forgiveness
- Death and disability discharge
- Eligibility for an income-driven plan.
Is Student Loan Refinancing Right or Wrong ?
Whether it is any type of loan Consolidation program, it is good for you because, it lowers your burden of multiple Student loans. But here we are talking about refinancing, refinancing is both good and bad in different terms. If you have a good credit score and steady income then refinancing is good for you. On the other side it is bad too, as it may cost you losing lot of benefits and protections which federal student loan borrowers own.
So, here is our suggestion. If you are considering refinancing, don’t forget ti compare offers from a few different lenders. Find best offer for a refinanced student loan. Before refinancing check your current financial situation and risks and benefits you are going to get.
That’s all. Thank you for reading this. We hope we solved your problem to some extent. Stay connected for further updates.
ALSO CHECK:- How to Consolidate Graduate Student Loans ?
ALSO CHECK:- Risks and Benefits of Student Loan Consolidation