refinance student loans

When you refinance your student loans, you are basically renegotiating the terms of your loan. Most of the time, this involves consolidating your loans as well.

Refinance Student Loans Basics

There is normally a grace period after graduation before loan payments begin. Student loan consolidation can be done before the grace period ends. The benefit of doing this is the chance to lock in lower student loan consolidation rates. The drawback is repayment begins without delay – taking away the few months of not having to make a student loan payment.

Student loan consolidation basically means taking several loans that accrued during the course of obtaining a college education and putting them into one loan. There are several advantages. The first advantage is only having one monthly student loan payment to manage. Other advantages are only having to deal with one creditor if there is a problem and extending the payments over a longer time period so they will be lower.

Who can Refinance Student Loans

Each lender has different qualification requirements for refinancing. Most lenders require that none of your loans be in "in-school" status - that is, you cannot be currently paying for education using an active student loan. Some lenders have a minimum balance requirement, and that balance is arbitrary.

Refinance Student Loans Strategy

It is often best to consolidate private and federal loans separately, since federal loans typically carry much lower interest rates. When you refinance a loan, the new lender essentially pays off your original loan for you and offers you a new one at a different rate.

When you refinance your student loans, you can reduce your monthly payments either by getting a lower interest rate, or by extending the duration of your loan. Of the two methods, getting a lower interest rate is preferable since you are also reducing your long-term student loan debt.

However, if your monthly payments are too high, extending the duration of your loan can be a big help. Effectively, you extend the period over which you repay your loans, so each payment is smaller. Longer terms, though, usually mean higher interest rates, and more interest payments. In the long run you end up paying more, but the payments are more managable.