Refinancing can save you money by replacing your current debt with a new loan at a lower rate through a private lender.
For example, refinancing student debt of US $ 30,000 with an annual interest rate of 8% to 5% can reduce the monthly payment from 364 to 318 US dollars and reduce interest paid by 3,500 US dollars. Or you can leave the payments the same as before, and be free of debts 20 months earlier.
You can refinance both federal and private student loans.
If you have federal loans, refinancing with a private lender has a downside: you lose your rights to federal loan repayment options, such as income-based repayment and forgiveness of public service loans.
Qualifying for refinancing
Although some refinancing lenders do not require you to earn a degree, you must still meet certain requirements.
You should usually attend a school that offers federal student assistance, known as the Title IV school, even if you haven’t graduated.
Lenders will rate your credit rating, which should be between 600 or higher. They will also want to make sure that you have a stable financial history and good income. Higher income borrowers find it easier to obtain refinancing permits and, as a rule, receive better interest rates.
If you do not meet these requirements, you need a collaborator who answers. Consider lenders who offer a joint exemption from signature, which allows your surety to take off his debt after a certain period of timely payments.
If you don’t qualify for refinancing
If you are unable to qualify for refinancing and you have problems repaying federal loans, apply for an income-based payment plan. These plans limit payouts as a percentage of your income and increase your repayment term.
To register for an income-based plan, you may need to first merge federal loans into one new federal direct loan. Consolidation will not lower your interest rate, like refinancing. However, this can reduce payments by extending the repayment period.
If you have private loans that you cannot refinance, contact your lender to find out what repayment options are available for troubled borrowers. You may be able to review your loan terms or lower payments over a period of time. Lenders also usually offer patience, which temporarily suspends loan repayments, while interest continues to rise.