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Why You Should and Shouldn’t Refinance Student Debt

If you have student debt, you may be wondering whether or not it is a good idea for you to refinance the loan. To be honest, it depends on your situation and several important factors. But make no mistake, you do have to pay them back. If you don’t, you risk defaulting on your loan, which could lead to other drastic consequences.

Not everyone will benefit from refinancing their student loans. So it is important that you take some time to think about it before you jump in feet first. Below, are some of the reasons why and why you should not refinance your student debt.

Consider the Interest Rate

The first thing you need to think about is what the interest rate will be. If the interest rate will be lower than the one you have now, it may be a good idea to refinance your student debt. If the interest rate is at or higher than the interest rate you have now, it would not make much sense to refinance your loan because you will end up paying the same or more overall.

Consider Additional Fees

Another thing you need to think about is whether or not there are any fees that go along with a refinanced loan. For example, some lenders will charge you an origination fee to setup the loan. This fee is typically a percentage of the total loan.

Another fee you need to think about is whether or not there is an early pay off fee. Some lenders charge this when you pay off your student debt earlier than the end of term date. This fee can be hefty in some cases. It may not make sense for you to refinance your student loans should there be a fee like this.

Consider the Length of the Loan

Before you choose to refinance, you want to make sure you take some time to think about the length of the loan. While refinancing seems like a good idea, you do not want to refinance if the term does not make sense. What we mean by this is that if your current loan term is 5 years and you can handle your payments, then it would not make sense for you to refinance and extend the term to 15 years just for a lower interest rate. If you can’t handle your current repayment term, then refinancing would be the way to go.

The problem with extending your loan length is that you would end up paying more over the course of the loan period. Therefore, if you stuck with the 5-year term, you would pay less than the new 15-year term.

Consider the Monthly Payment Amount

You should always consider the monthly payment amount. If your payment amount is more than what you can afford, then it would not make sense for you to refinance. When you refinance, the monthly payment is sometimes larger, especially when you choose to shorten the term length, so you must be aware.

Consider the Eligibility Requirements

The last thing you need to think about is whether or not you are actually eligible to refinance your student loans. Most borrowers are not and will need to have a co-signer. A cosigner can be difficult to obtain and even strain a relationship. If you are eligible and you feel it is the right choice for you, then you should apply.

Final Thoughts on Refinancing Student Debt

Refinancing student loan debt is a good strategy for some, but not for all. You should take some time to think about whether or not refinancing will work for you. Take a moment to talk to a private lender and see what they can offer you. You don’t want to make your situation any worse by doing the wrong thing.

Questions for Discussion: How much student debt do/did you have to repay and how long did it take? Did you refinance your loan? If so, was it a good or bad experience? What would you have done differently when it comes to paying for college?

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