Thinking of refinancing your student loans? What there is to know

Refinancing your student loan can save you a lot of money, but it might not make sense if you have a federal loan or can’t afford it. (iStock)

President Joe Biden has expressed support for forgiveness of $ 10,000 in student loans per borrower. In addition, he called for changes to the Public Service Loan forgiveness program. Under his plan, student loan borrowers would receive $ 10,000 in student loan forgiveness each year (up to five years) when they participate in a national or community service program.

This student debt cancellation proposal applies only to student loan borrowers who hold federal student loans. If you have a private student loan, you may not receive any student loan forgiveness.

However, if you have a private student loan, student loan refinancing can help you save a lot of money. Since refinance rates are low right now, financial experts recommend it. With a lower interest rate, you can lower your monthly payment and pay off your loan faster.

To get an estimate of your rate, use an online tool like Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit score.

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How Student Loan Cancellation Affects Federal Loans

Current student loan cancellation proposals target federal student loans. According to a report According to MeasureOne published last March, 92.3% of student loans are federal loans. This means that if a portion of student loans were canceled, the majority of student borrowers would have some or all of their debt written off.

In addition, although the $ 10,000 student loan forgiveness is uncertain, federal borrowers can take advantage of the programs to get some relief. For example, if you are enrolled in an income-based repayment plan or government loan forgiveness program, you may receive a discount after making a certain number of payments.

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How student loan cancellation impacts private loans

The impact of student loan cancellation on private student loans is uncertain. While some have speculated that private student loans could be canceled in the future, there is no guarantee that this will happen.

Unlike federal student loans, there is currently no private student loan cancellation option.

If you are planning to refinance your private loans now to save money, use an online tool like Credible to preview your personalized student loan refinance rates from multiple lenders at once without affecting your score.

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When should you consider refinancing your student loans

If you have a private student loan, you should consider refinance your student loans now if you can get a lower rate and afford to pay off the loan. Refinancing before student debt cancellation can help you lock in rates while they’re low.

Waiting for the forgiveness of the student loan is risky because there is no guarantee that it will be successful. Even if this is the case, it is likely that this will not apply to private student loans.

The benefits of student loan refinancing include:

  • Lower your monthly payments
  • Reduce your borrowing costs
  • Ability to accelerate debt repayment

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the best student loan refinance rates generally go to borrowers who have excellent credit scores. According to the FICO credit scoring model, a very good credit score is at least 740. To qualify for a new private loan, you must have a good credit score (670 or higher).

Before applying for a new loan, check your credit score and examine your credit report for errors or incomplete information.

If you have a less than stellar credit score, you may not be able to get a lower rate. However, applying with a co-signer who has great credit might help you get better.

To check your rates, use an online tool like Credible to get prequalified student loan refinance rates. without affecting your credit score.

Plus, if your private loan has a variable interest rate, refinancing your student loan gives you the option of switching to a fixed rate loan. This way, your payments would not increase with the rise in interest rates. Having a fixed monthly payment might be easier to budget.

Since federal student loans are currently on hold and have 0% interest rates, it doesn’t make sense to refinance them. Plus, you would miss out on a possible student loan forgiveness and foregone benefits, such as income-based repayment plans.

However, once the break is over, it might be a good idea to refinance them if you don’t need these benefits and want a lower rate. Weigh the pros and cons before making this decision.

SHOULD YOU REFINANCE YOUR STUDENT LOANS?

At the end of the line

If saving money is your goal, refinancing your student loans might be a good idea. Getting a lower rate could lower your monthly payments, making it easier for you to save for other purposes. Before you apply, however, weigh the pros and cons of taking out a new loan with other types of student loan repayments.

To make sure you can afford the new loan, use a online student loan refinance calculator to get an idea of ​​what your new monthly payments might be.

Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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About Joan Ferguson

Joan Ferguson

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