Refinancing is a practical strategy for managing high-interest student loans. It involves obtaining a new loan, typically from a private lender, with different terms to pay off your existing loan(s). The objective is to secure a lower interest rate, which could reduce the total amount paid over the loan term.
Benefits of student loan refinance include:
Lower interest payments: For instance, moving from a 7% to a 4% interest rate on a $30,000 loan with a 10-year term could save nearly $5,000.
Flexible loan terms: You may extend for lower monthly payments or shorten to pay off faster and decrease total interest.
But there are potential drawbacks.
Most notably, if you refinance federal loans, you’ll lose federal benefits and protections like income-based student loan repayment plans and loan forgiveness programs. Therefore, the decision to refinance should be weighed carefully against these potential losses.
Refinancing could be a great option if you have a stable income, a good credit score, and private student loans or federal loans you’re confident won’t need income-driven repayment benefits. It could be an effective way to lower your student loan interest rate and save money over time. Next, we’ll explore more strategies for reducing your student loan interest.
Use an online marketplace like Credible to find the best student loan refinancing lenders.
Related: How to Lower Private Student Loan Payments