Refinancing student loans – what you need to know

Student loan repayment is a major source of financial stress for many people. You can end up paying a significant amount of money in interest rates alone, making it difficult to achieve your other financial goals. Refinancing your student loans is one of the easiest ways to lower the amount of money you’re paying back in the long run. Here’s what you need to know about refinancing your student loans before you do it. 

What is refinancing? 

Refinancing is essentially the process of redefining the terms of your student loans. You’ll apply with one of the many different companies offering student loan refinancing, and they could potentially offer you a much lower interest rate and fairer payment plan. However, refinancing won’t always guarantee lower rates – you’ll need to qualify for refinancing by having a good credit score and income. 

Should you refinance your loans? 

Luckily, you can check online with many different companies to see if you qualify to refinance your loans without actually committing. Once you decide to qualify, you’ll need to look at the rate you’ll get with a refinance and decide if it is worth it. If you are getting a significantly lower interest rate, it almost always makes sense to refinance, particularly if you have private student loans. However, if you have federal student loans, you may not want to refinance if you are on an income-driven repayment plan. Income-driven repayment plans are sought after and can help ensure that you make payments consistently. A lower interest rate won’t mean much if your income doesn’t have room to make the repayments. 

Why refinance your loans? 

There are plenty of reasons to consider refinancing your loans. A lower interest rate will mean that you pay a lot less in the long run, giving you more flexibility with your finances. You also may be able to pay off your debt faster and improve your credit score in the process. There’s also a chance that you could qualify for lower monthly payments, which makes it much easier to fit your loan payments into your budget. It’s worth investigating refinance options every few years, just to see what you qualify for.