Flickr user Blondinrikard Fröberg
You’ve heard the surprising statistics: over 44 million Americans are in debt with $1.3 trillion due to student loans. That’s over 13% of the nation’s population! The number is scary, for sure, but it’s important to keep it in perspective. Just because an individual is in debt doesn’t mean it’s something they can’t recover from. In fact, although difficult, student loans don’t have to be crushing. As long as you handle everything correctly, the process can be much easier than you may think. One of the most important things to remember about student loans is that, despite what you may think, they can be refinanced. If you choose to refinance your loans, you forego your original contract with your debtor, replacing it with a new agreement that alters your financial repayment plan.
Should You Refinance Your Loans?
One of the reasons to refinance your loans is that refinancing can result in lower interest rates or payment installments, but, as is often the case, there’s a trade-off. You’ll have to ensure that your credit score will reflect your ability to repay your debts on time, and you may lose benefits you originally had under the contract. The big question then, obviously, is how you’ll know whether or not to refinance a student loan is the right way to go. There’s no clear answer, but there are several factors you should be taking into consideration. As is the case with many aspects of student loans, the first thing you have to do is discern your priorities: what do you not like about your current plan, and how can you change it?
Many students list interest rates as the largest factor they take into consideration when looking at loans. These rates fluctuate wildly depending on the current loaning market, with some as climbing higher than 11%. If you come to the conclusion that your current interest rate is far too high, you’ll clearly want to consider refinancing your loans at a lower rate. By looking into refinancing options, you’ll open the door for lower rates that will ease the financial burden on your shoulders.
Thinking About the Future
You’ll also need to take into account your personal financial future, specifically your career prospects upon graduation. Some grads struggle to find a stable job, but others lock themselves into a long-term position early. If you know that you might take some time to find your footing, it might be best to refinance your loans to a longer repayment period. For example, the most common student loans are expected to be repaid ten years after graduation. However, if you want to give yourself an additional cushion, you can extend this period an additional ten years, often trading this time for a higher interest rate.
Another reason to refinance, frankly, is to find a student loan lender or other loan source that you feel will listen to you. If you’re the type of person that values customer service (and aren’t we all?), it can be hard to deal with a large bank or lending house. If you start to feel like you’re getting lost in the shuffle, it might be time to refinance with another lender that will pay closer attention to your needs.
Is Refi Right for You?
All the above boil down to personal preference, and it’s vital to understand your priorities before you jump headfirst into altering your financial future. As long as you consider your own needs and take a practical glance at your economic outlook, you’ll find a solution involving refinancing that works best for you.
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