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Refinancing or consolidating student loans refers to the process in which old loans are paid off and replaced entirely with a new one. Depending on what you owe and the payment plan you’ve chosen, the repayment agreement can be extended to lower your monthly payments. Generally speaking, when you have a longer term on your student loans, the interest rate will automatically be higher to supplement the lengthy payment contract. Keep in mind that there is no penalty for paying off the loan earlier than specified or making extra payments along the way.

Reasons You Should Refinance Student Loans

Save Yourself Money –
Refinancing allows you to either lengthen your loan term or lower your interest rate, allowing you to save money over the course of your new agreement.

Organize Your Bills –
If you have multiple student loans, refinancing bundles all of them into one convenient and easy-to-manage loan payment. This can simplify your bills to help control debt.

Get a Handle on Debt –
Refinancing student loans lowers those monthly payments, giving you the chance to spend the saved money on other debts like credit cards or delinquent car payments.

Get Rid of a Cosigner –
If someone co-signed the student loan with you, you may want to refinance to remove them from the contract. Cosigner release is a specific term that often pertains to parents who want to be exempt from past loan agreements with their children.

Change Lenders –
Student loan lenders vary from one company to another, and if you’re not happy with the lender you’re currently using, you can refinance to change companies. If you’ve ever had poor customer service from your lender, this is a sure sign that you need a different company.

Reasons Refinance Might Not Be the Best Option

You Could Lose Loan Benefits –
Refinancing your federal student loans to a private lender could cause you to see the loss of federally-granted benefits like deferment, loan forgiveness, forbearance and government-paid interest.

You Would Wind Up Spending More Money –
Refinancing could potentially cause payments or interest rates to be higher, costing you more money long-term than you would have paid with previous lending.

You Would Lose Your Grace Period –
You could lose your grace period if you refinance before this term has ended, causing you to have to make loan payments right away with the new company.

Military Servicemen and Women Could Lose Benefits –
If you are active duty and consolidate or refinance student loans, you will not qualify for the reduction in interest rates found under the Service Member Civil Relief Act (SCRA) for any loan you took out during your service.

Types of Refinancing Options

Direct Consolidation –
This type of agreement only includes student loans that were received with federal aid. These specific loans include ones obtained through Direct Unsubsidized, PLUS, Perkins and Direct Subsidized. Direct consolidation is provided to you by the federal government and eligibility is solely based on your credit score. With this refinance option, you can be sure that your interest rate will remain the same for the entire length of term.

Private Loan –
Private lenders offer loans for both private and federal contracts. Instead of the government being your lender, you will be working directly with the bank or loan company that provides the arrangement. Again, your credit score comes into play when applying for a loan through a private lender and interest rates can go up or down depending on a variety of factors.

Refinancing your student loans can lower payments, provide you with a better rate and offer you a solution for accumulating debt. Over 40 million Americans hold some degree of student loan debt, with many of these individuals graduating already owing a large sum in loan repayment. Many graduates find it difficult to put their degrees to use, making it especially strenuous to pay off those loans. If it’s been years since you graduated and you’re still dealing with high interest student loan payments, it’s time to consider refinancing to lower costs and make life easier on yourself.