There are several circumstances where refinancing student loans can save you money. For example, it can help lower your interest rate, consolidate your loans, or release a cosigner. Here are some reasons why people opt to refinance their student loans.
Their Strong Credit Score Qualifies Them for a Lower Interest Rate
A person can qualify for a student loan with a relatively low credit score. However, they may be stuck with higher interest rates than they would like. Over time, if a person can improve their credit score, student loan refinancing may get them better rates and improve their cash flow. Refinancing your loan once your credit score is higher can give you access to more money that you can use to cover other expenses, including paying down another high-interest debt.
They Want to Change Their Variable Interest Rate Loan to a Fixed-Rate Loan
You may have had no option but to get a student loan with a variable interest rate. The problem is that your interest rate could skyrocket if market rates change. If that happens, refinancing your student loan to a fixed-rate loan could be less expensive. However, the same principles apply if your current private loan has a high-interest rate. For example, if your loan has high balances and high-interest rates, you may be able to save money long-term and have a few extra dollars in your pocket short-term by getting a lower interest fixed-rate loan.
They Want to Decrease the Number of Lenders They Owe
Some students had to take out multiple private loans to cover college costs. Now, they are paying money to several different entities each month. Refinancing into a single loan can mean just one monthly payment. If you have federal loans, you may wish to consider a direct federal consolidation. This has a weighted average interest rate. Either way, you can go from having several loans to just having one loan payment.
However, according to Lantern Credit by SoFi, “Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 05/01/22. Please carefully consider these changes before refinancing federally held loans. In doing so, you will no longer qualify for these changes or other future benefits applicable to federally held loans.”
They Are Looking to Release a Cosigner
When they first take out loans, some students lack the creditworthiness to get a loan independently. So they need to get a cosigner. However, they are now in a financial position where they can get a loan independently. Refinancing student loans could be a way to release a cosigner from liability for your student loan debt. In some cases, if you pay your loan on time for between two and four years, you can release the cosigner without refinancing.
Not a Decision to Be Taken Lightly
Refinancing student loans is not a decision that should be taken lightly. Once you pull the trigger, you can’t turn back. Instead, you should do your due diligence, understand the pros and cons of the decision, and crunch the numbers to make sure that you can afford your new monthly payment.
