Student loan refinance is the procedure of getting a new loan at a new rate of interest. Students have the option of refinancing both their private and federal student loans. This involves paying off an old loan and getting a new loan that comes with a better rate of interest and varied repayment terms. Refinance student loan is not the same as consolidation. However, there are many people who use these terms interchangeably. Loan consolidation is the procedure of going for a consolidation loan and combining all the student loans into one with just a single rate of interest. There are some similarities between consolidation and refinancing, but consolidation does not provide any savings on interest. Additionally, the borrowers of private student loans do not have the eligibility for consolidation. It is only because of this reason that refinancing is considered one of the best options for the private student loan borrowers and even for the ones with the perfect combination of private and federal student loans.
The Greatest Advantage of Student Loan Refinance
One of the major benefits of refinancestudent.loan is that the borrower gets the potential of saving a huge amount of money in interest over the term of the loan. The borrowers with Grad PLUS loans, for example, need to pay around 7% rate of interest through refinancing. There are even chances of getting approved for lower rates of interest and thus saving a huge amount of money. The additional savings can be used for making more payments towards the principal amount, for investments or for starting emergency savings fund.
What to Consider when Going for Student Loan Refinance?
Refinance student loan is one of the best methods of making payments management but there are some important factors to consider prior to deciding on refinancing student loan. By way of the procedure of refinancing, you are actually applying for private loan. In case you already have certain private loans, it will not be a major problem. However, in case you have federal loans, you will have to give up all your protections and these will include:
- When you go for refinancing your federal student loans, you will not be eligible for various income-driven programs. You might not require such programs but in difficult times, such programs might run out to be lifesavers.
- Federal student loans come with loan forgiveness alternatives and these have their own terms and conditions. It is to be understood that loan forgiveness shall not be an option if the student loans are refinanced.
- In case you get into financial problems, postponing your loan payments by way of forbearance or deferment can be of good help. Nevertheless, if you go for refinance student loan, you might have very limited options when it coming to postponing loan payments.
The refinancing procedure is an irreversible procedure. This means that you cannot go back and get the benefits of refinancing at a later date. Refinancing the loan of students means you will be with your refinancing firm for the duration of the repayment. This does not mean that refinancing should not be considered a viable alternative to paying back huge and multiple loans. However, it is something that needs to be considered seriously.