It is no secret that student loan debt has managed to cripple thousands of students all over the world. Fending off this debt can take excruciatingly long periods. However, student loan refinancing or using a student loan repayment calculator may do you some good.
What is Student Loan Refinancing?
Student loan refinancing refers to the process of acquiring a new loan at a new rate of interest. You can generally refinance your private and federal student loans.
This process involves clearing your old loans and obtaining a new loan with entirely different terms for repayment and possibly a more favorable rate of interest.
Should you opt for Student Loan Refinancing?
Student loan refinancing is undoubtedly an excellent way to handle your debt. However, there are several things you ought to consider before you decide to go ahead with student loan refinancing.
Keep in mind that student loan refinancing involves changing your loan terms. This could include your payment schedules and interest rates. You can refinance your federal loans as well but, you may lose the federal protections that come with the federal student loan. Here are the federal protections you should know about:
Income-Driven Repayment Plans
The Income-Driven Repayment (IDR) plan is provided by the federal government. Its purpose is to help people fend off their student loan payments. The IDR plan considers your income levels and designs a plan for repayment around the same. It is an excellent way to get short-term relief from continous repayments. However, this also means that you will have to pay higher interest in the long-term.
Forbearance is the choice of delaying your student loan repayments if you are unable to make monthly payments. When in forbearance, you can expect your loans to accrue interest. In other words, your repayment balance will be higher when your loans re-enter repayment. This is a great short-term solution, but it is not advisable to use this unless absolutely necessary.
Through a deferment, you can stop making loan repayments or reduce the amount you have to pay for up to a period of three years. The interest on these deferred loans does not accrue during this period because the government pays the interest. Student loan refinancing, however, can take away these privileges.
What makes you eligible for Student loan Refinancing?
There are a variety of student loan refinancing options at your disposal since these companies are private lenders. However, you need to make sure you qualify for a student refinancing loan before you apply for one.
An important thing to keep in mind is the fact that these lenders tend to have difficult eligibility terms in comparison to lenders of federal loans. You must ensure you do your research and find out what each lender needs from your side.
As a rule of thumb, lenders require you to maintain an above-average credit score. Additionally, you may have to show proof of stable income and cash flow to be able to refinance your loan. On the off-chance that your credit score falls short or you do not have an income that matches the requirements, you will need a cosigner to be eligible for student loan refinancing.
In a nutshell, lenders need the following from your side:
- Your Credit Score
- Your savings and miscellaneous assets
- Your Annual Income (or potential annual income in the case of doctors)
- Your proof of degree
Is it a good idea to Refinance a Student Loan?
You may be qualified for refinancing. However, you ought to ask yourself if student loan refinancing is something you should do. You should probably go for it in the following cases:
If you have student loans at high-interest rates
With the interest rates for student loans always on the rise, making repayments for the same at varying and possibly increasing rates is not the best idea. Refinancing your student loan can prove to save you a lot of money.
If you have private student loans
If you have private student loans, refinancing may be useful, especially considering you will not be eligible for federal loans.
If you have built up an excellent credit score
Building up an excellent credit score and securing a strong financial foothold before opting for student loan refinancing is much smarter than doing the same when you are just starting.
Best Student Loan Refinancing Options
If you have decided to go ahead and look for excellent student loan refinancing options, here are a couple that you ought to check out.
Earnest has managed to earn a name for itself as one of the leading student loan refinancing lenders on the market today. It offers you the liberty to choose just about any monthly payment term between five years and twenty years, which is not the case with most lenders.
Additionally, you also have the choice to change your loan. You may either refinance your loan free of charge, or change your payment dates, or even skip a payment once in a year and compensate for the same.