Loans
December 16, 2019

Should You Refinance Your Student Loans? How To Decide

Written By Emily Jones
Last updated December 16, 2019

Simple. Thrifty. Living.

Student loan debt can add up quickly, especially if you go back to college for a graduate degree. The low interest rate and ability to postpone repayment until graduation make education loans attractive. However making payments on the loan when it comes due can be hard on your budget. Refinancing your student loans may help to cut costs and reduce stress. Here are some considerations to keep in mind.

Depending on the type of loan you have, such as a variable rate, the interest rate may increase when it’s time to start making monthly payments. Whereas a low-interest rate may apply while you are still in college. After earning a degree, the interest rate may climb, which means you will pay more for the loan over the time. In this case you may want to shop around for lower interest rates and consider refinancing.

However make sure you can find financial funding options with similar loan terms. Look for no application fees or annual maintenance fees. Check out their late-payment terms and missed-payment penalties to avoid unexpected costs. This can be especially important if your budget takes a hit by an emergency.

If your student loans require significant monthly payments beyond what you can afford, you might be able to get lower payments by refinancing your loans for lower fees and a reduced interest rate. Some lenders offer a zero-percent interest rate that is temporary for six to eighteen months. Which can be a big help to new grads who are just starting a career, often with entry-level wages.

Longer Term

A longer-term loan can also reduce monthly payments if you don’t mind paying on the loan for a year or two more than originally planned. This can help tremendously when you are just starting a career position and learning to budget. As your earnings climb over the next few years, you may be able to pay extra on the loan’s principal balance.  This cuts overall interest costs and pays off the debt quicker. But even if you can’t, the goal is to have the payments become increasingly more affordable. 

A credit score that is low or non-existent due to limited earnings while a student may not put you in a good financial position to add a monthly loan payment to your post-graduation, new-job budget. If you struggle to make payments and possibly miss them occasionally, your credit rating could fall further, jeopardizing your financial reputation. Student loan refinancing can help you get better terms for your student loans that you can more readily afford, thus protecting your credit score from being negatively impacted due to missed payments or defaulting altogether on the loans.

If you are concerned about keeping up with student loan repayment. Give some thought to refinancing student loans, shrink the payment or pay less in interest over time.

About the Author

Emily Jones

Emily Jones has been writing for personal finance blogs for over 5 years. Her specific interests include, budget travel, living well on a budget, and deal finding. While in graduate school Emily was forced to find creative ways to be able to afford to travel. Now that she has a family, her affection for travel and shopping continue, but on a very tight budget. Emily enjoys sharing her deal finding tricks with her readers.

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