If you’re one of the over 43 million individuals with student loan debt in the United States, you’re probably looking for a way to pay if off faster. While there are some legitimate ways to do this, there are many factors to assess before deciding on any path. Should you refinance your student loans? The answer is entirely dependent on you.
What Does It Mean to Refinance Student Loans?
Refinancing is one of the most popular solutions for consumers to improve their relationship with debt. This is a standard procedure that’s done across the world for many different forms of loans.
But what is refinancing, and does it make sense for you? These are some of the common questions that are asked by borrowers who want to ensure they’re doing the right thing for their long-term financial health.
The basic idea behind refinancing is quite simple. It’s a process of replacing an old loan with a new one. Why would someone want to do this? Well, do you love every aspect about your loans? Probably not.
A student loan refinance can allow individuals to get more desirable interest rates and repayment terms on their debt. This can be extremely advantageous for consumers who have high-interest-rate loans that are bleeding their savings dry.
It’s important to note that a student loan refinance can only be done through a private lender. While loan consolidation can be done both privately and through the federal government, refinancing is exclusively a private affair. There are some pros and cons to this that you’ll want to carefully consider before going through with any decision.
Should You Refinance Your Student Loans?
The idea behind refinancing your student loans is that it can help you achieve a lower interest rate, change the repayment term, or even add or remove a co-signer. For most kinds of loans, it can make sense to refinance whenever you’re able to do so in a way that reduces your debt obligations over time. With student loans, however, there are a few additional variables that need to be factored into your calculations.
The most important difference between refinancing student loans and all other kinds of debt is the fact that the vast majority of student loans go though the federal government, while it’s only possible to refinance through a private lender. While there’s nothing wrong with private lenders, refinancing a federal loan to a private one can cause some unintended consequences.
There are several benefits built into federal student loans that can make them an unusually attractive form of debt. Beyond many being subsidized, federal loans also have various repayment plan options for qualifying individuals—such as income-driven repayment. Furthermore, as most student loan borrowers are aware, interest and repayment on federal student loans has been paused since the start of the Coronavirus pandemic. This has been a huge benefit to millions of people. Those with private loans wouldn’t have been able to take advantage of this. The program, however, is scheduled to end May 1, 2022. Although, it has been extended before so this could in theory happen again.
At the same time, there are situations when refinancing student loans makes perfect sense—even if you have certain federal loans. Those with Direct PLUS loans can often benefit from the drastic reduction in interest rates, even if it means losing some federal benefits. If you have private student loans already, you shouldn’t think twice about refinancing them to a lower rate. This is free to do and can be done multiple times without penalty.
What’s the Best Way to Refinance Student Loans?
No one wants to spend their free time thinking about their debt. If you think refinancing your student loans is the right move, you probably want to find the best deal with as little effort as possible. You’re in luck because a company called Juno provides consumers just that service.
Instead of being a lender themselves, Juno takes in and evaluates lending offers from a large pool of financial companies. They then select only the best deals from this bunch and pass them on for consumers. This is a free service to use for consumers. And if you can find a better interest rate (you almost certainly won’t), Juno will match it.
There are several aspects that need to be considered before you refinance your student loans. Understanding the ins and outs of this process will help you make the best possible decision.
