Refinance Student Loans


Refinance Student Loans - On average, college graduates rack up nearly $23,000 in student loan debt. (This total doesn't include the debt incurred by the nearly 50% of students who start college and never earn a degree.)

While there are potential benefits to student loan consolidation, it's not always the best solution for everyone. Here are some factors to evaluate before you refinance student loans:

  • Are your loans federal? Federal student loans (aka Sallie Mae loans) are guaranteed by the government and have more favorable terms than private loans. Since the government sets the interest rate, it's typically lower than the APR offered by private loans. Types of federal student loans include Stafford, Perkins, Parent PLUS, and Graduate PLUS.

  • Do you have private loans? Private student loans, also known as personal student loans or alternative student loans, generally carry lower APRs than other lines of credit, like credit cards and personal loans. The interest paid on private student loans is typically higher than their federal counterparts.

  • Are your loans a combination of federal and private? Most students have a combination (and more than one) of each type of loan.
Aside from the efficiency of making a single payment each month, there is usually no monetary benefit to refinancing federal student loans. Chances are, it will be difficult to secure a new loan at a more competitive rate than what you're currently paying.

The most common way to refinance student loans is with a consolidation loan, a new loan that replaces several individual loans. In this scenario, the balances of your original loans are lumped together and funded at one fixed APR. While a single payment is more convenient than making multiple payments each month, a consolidation could wind up costing you more in the long run if you combine loans with lower APRs into a consolidation loan at a higher interest rate. Bottom line? Carefully evaluate the terms of your original loans, and never include a loan into a consolidation if it will increase the interest rate.

While almost all refinance student loan consolidation plans will lower your monthly payments, they'll also tack on several thousand dollars in interest by extending the term of the loan. For example, if you extend a 10-year loan to 20 years, you may lower your payment by a third, but you'll wind up paying nearly double the amount of interest over the life of the loan.

Just because you're no longer a student doesn't mean you're exempt from homework or research. Spend time learning about consolidation loans before you refinance your student loan to ensure that your decision is in your best financial interests.



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