Con: Any Existing Grace Periods May Go Away
As soon as you take out a refinanced loan with a private lender, you must start repaying it. With many student loans, you can delay payments while you are still in school or if you have entered a graduate program. If your current loan is still within its grace period, wait until that period ends before starting the refinancing process.
Pro: You Can Release A Cosigner From The Loan
Another benefit of refinancing your private loans is that you might be eligible to sign for the loan on your own. Dropping a cosigner, who is typically a parent or another close family member, not only gets them off the hook for your debt, but it may raise their credit score and allow them to access new lines of credit if they need to. Federal loans don’t typically involve cosigners.
You Should Hold Off On Refinancing Student Loans If
- You’re going after student loan forgiveness. The federal government has a few student loan forgiveness programs, including Public Service Loan Forgiveness, and when you refinance, you’ll be ineligible for these programs. The federal government doesn’t offer student loan refinancing, so you’ll have to go with a private lender.
- You want an Income-Based Repayment plan.These plans are available through the federal government and take your particular income and family size into account when calculating monthly payments, and could reduce them to as little as $0 per month. Private loans don’t have this option.
- You’ll end up with a higher interest rate than the one you currently have. This might go without saying, but if refinancing your loan will leave you with a higher interest rate, it’s not a good idea.
- You’re currently behind on payments. Your payment history makes up a significant part of your credit score, so the score will be significantly lower if you can’t make your payments now. A low credit score will make it harder to get a good interest rate on your loan.
Whether or not you choose to refinance your student loan, consider seeking financial counseling before making a decision. A knowledgeable expert can help you make the best decision for your specific situation.
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Benefits Of Refinancing Federal Student Loans
If you feel comfortable potentially giving up the above benefits, then refinancing may be a good option for you. If you qualify, you may benefit from refinancing because of:
- Lower interest rates. If you have a good credit score or it has improved, you may qualify for lower interest rates than those you are currently paying. Lower rates can save you money over the life of the loan.
- Lower monthly payments. When you refinance your loans, you may have the option to extend your repayment term. Extending your repayment term can decrease your monthly payments, though its important to note that extending your loan repayment could increase the total cost of your loan due to interest payments. However, if your new rate is low enough, you could still save money, even with an extended repayment term.
- The ability to consolidate student loans. When you refinance youre able to take multiple student loans and refinance them into one loan. This is known as student loan consolidation. Making just one payment monthly can simplify your repayment. You dont have to refinance all of your loans at onceyou can pick and choose what loans you want to refinance.
- The ability to release a cosigner. If you initially took out student loans with a cosignerwhich most federal loans requireyou can use a student loan refinance as an opportunity to release them from their obligation. If your credit history is strong enough, you can get your new loan entirely in your name.
What Happens If You Cant Pay Back A Personal Loan On Time
Before you take out a personal loan, you should consider your situation and your ability to pay it back.
There can be serious consequences if you dont make your loan payment by the due date:
- your lender can request that you pay the full amount of the loan at once
- your lender might have the right to take something that you own, such as your car, if you have a secured loan
- your lender can report a missed payment to the credit bureaus, which could mean it will show up on your credit history and could hurt your ability to get credit in the future
- your lender will usually charge you a non-sufficient funds fee if you dont have enough money in your account to cover a payment that is supposed to be paid with a pre-authorized debit
- your lender could sue you for the debt
Act quickly if you are having trouble making repayments. If you cant make the full repayment, pay what you can. Contact your lender without delay.
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Know Your Goal Before You Start
Are you hunting for lower interest rates or do you want to simplify the repayment process? Or are you hoping to consolidate multiple loans into one new loan so you have one payment instead of several?
Refinancing may improve some or all of the terms of your loan and reduce your monthly payment. However, you could end up paying more in the long run depending on the changes to your loan terms. For example, if you extend the length of the loan to reduce your monthly payment you may pay more overall interest.
Typically, people refinance their loans to simplify monthly payments or get new repayment terms. Loan refinancing isnt a good fit for everyones circumstances. Whether refinancing helps you depends on factors like what type of loans you have, their interest rates, how long ago you took them out, and whether they came with borrower benefits or repayment options you wouldnt want to lose.
Many borrowers think consolidating their federal loans will lower their interest rate. With federal loan consolidation you may qualify for additional repayment and forgiveness options, but you wont get a lower interest rate. The interest rate will be a weighted average rounded to the next 1/8% of your existing federal loans. Federal consolidation simplifies your payment process, but doesnt necessarily reduce interest rate or your debt burden.
How To Refinance Student Loans
Refinancing student loans has a big advantage over other types of debt, like mortgages, because upfront loan origination fees are very rare.
Since most lenders dont charge student loan refinancing fees, comparing offers is simple. Its a matter of finding the lowest interest rate or the ideal loan term.
Completing a refinance application is fairly straightforward, but youll need to include supporting documents to verify your income and identity. And to qualify for a refinance youll need healthy credit scores and usually a debt-to-income ratio of 50% or less although these numbers will vary by lender. As your financial profile improves, a lower DTI and higher credit score can help you qualify for lower interest rates.
Its not just your credit scores that affect your eligibility for a private loan. Theyre also going to look at information that isnt in your credit history, says Kantrowitz. Lenders will want to know your income and how long youve been at your current job. Generally speaking, the lender is going to want to see that youve been at the same employer for at least two years, he says.
This can be a dilemma for new graduates without a strong credit history or high income.
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Variable Rate Refinancing Loans Typically Have:
A rate thats tied to an index rate, such as the prime rate or LIBOR. A lower initial rate than fixed rate refinancing loans Payments and total interest cost that change based on interest rate changes A cap, or maximum interest rate
Generally speaking, a variable rate loan can be a cost-saving option if youre reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to risetaking your loans rate with it.
How A Government Shutdown Effects Student Loans
If there is a short-term government shut down, expect little impact to your student loans. Specifically, a government shutdown only affects the federal government. There is no impact to private student loans, for example, and state and local governments will continue to operate. Currently, for your federal student loans, there is temporary student loan forbearance through January 31, 2022. . This means that there are no mandatory federal student loan payments and interest rates on federal student loans temporarily are set at 0%. Even with a longer-term government shut down, you should still be able to:
- pay student loans
- apply for student loan forgiveness.
The question is whether processing these various requests could be delayed while the federal government is shut down. . The good news is that you can contact your student loan servicer, which is a private company that works with the federal government to manage your student loans but isnt part of the federal government.
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Should I Refinance My Federal Student Loans
Were here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.Read moreWe develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide.We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.Read less
If youre thinking about refinancing your student loans, you probably heard that interest rates are lowor at least lower than what youre paying. Maybe youre looking to pay down your loans fasteror maybe youd just like to lower your monthly student loan payments.
Of course, if your student loans are federally held, you havent had to make payments since the passage of the CARES Act last year. And thanks to President Joe Bidens executive order, the payment holiday, which includes 0% interest, has been extended through September 2021.
Yet the pause is finite while interest rates could rise before the holiday ends. Theres also the option of consolidation to take into account.
Clearly, knowing ifand whento refinance is not a simple decision. These answers to some frequently asked questions about federal student loan refinancing may help you decide whats right for you.
When Should You Refinance Government Loans
Only refinance government loans if you’re comfortable with the risks involved. If you’re OK giving up federal loan benefits, refinancing student loans could offer long-term savings on high-interest federal loans.
For example, say you owed $30,000 with a 7% interest rate and 10 years on your repayment term. Refinancing at a 3% interest rate roughly the best you could expect would save you close to $7,000.
To qualify, youll typically need good credit and a debt-to-income ratio less than 50%. If you wait to refinance, work to exceed those benchmarks to get the best deal possible when you do apply.
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Should You Refinance Your Student Loans Before Federal Payments Restart
- Rangely García for Money
To refinance now or to refinance later? That is the question for many federal student loan borrowers strategizing over how to save the most money.
Nearly 43 million federal student loan borrowers have enjoyed a break from their payments, as well as 0% interest on their existing balances, for more than a year and a half now. For borrowers with comfortable salaries whove been able to continue making payments during this pandemic-era forbearance, the past 20 months has been a unique opportunity to make headway paying down principal.
Can You Refinance Student Loans While Still In School
Most lenders wont let you refinance student loans while youre still in school. If a lender does allow this, you may need to be close to graduation to qualify and will likely have to start repayment immediately.
Typically, you must have already finished or left college to refinance your loans. And some lenders require you to have graduated with at least a bachelors degree. Most refinance lenders also wont accept applicants who didnt attend a school authorized to receive federal aid dollars.
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Pro: Repayment Terms Can Be Flexible
When you consolidate your loans with a private lender, you can choose how long you want the loan to last and whether it carries a fixed or variable rate. Choosing a variable rate can be riskier since rates can go up anytime, but it can also get you a lower interest rate at the start of the loan. Federal consolidation loans carry a fixed interest rate.
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You Should Consider Refinancing Student Loans If
- You have private student loans. You don’t have anything to lose by refinancing a private student loan, as you won’t forgo any federal protections and are rarely charged an origination fee to refinance.
- You have improved your credit score. If you’ve taken steps to boost your credit score since initially getting your student loan, you may now qualify for better terms with your higher score. Federal loans don’t take your credit score into account except for Direct PLUS Loans so this may not apply in your case.
- You want to switch from a high variable rate loan to a lower fixed rate loan. You may have chosen to take out a variable rate loan because it came with a lower rate than the fixed rate loan you were offered at the time. However, because the interest rate on variable loans fluctuates, you may want to lock in a rate so you don’t have to worry about it increasing down the road.
- You’ll save money overall. This may seem simple, but if you can snag a lower interest rate or a shorter term length , refinancing may be a good choice.
Fha Loan Credit Issues
Your FHA lender will review your past credit performance while underwriting your loan. A good track record of timely payments will likely make you eligible for an FHA loan. The following list includes items that can negatively affect your loan eligibility:
- No Credit History If you don’t have an established credit history or don’t use traditional credit, your lender must obtain a non-traditional merged credit report or develop a credit history from other means.
- Bankruptcy Bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage. For Chapter 7 bankruptcy, at least two years must have elapsed and the borrower has either re-established good credit or chosen not to incur new credit obligations.
- Late Payments It’s best to turn in your FHA loan application when you have a solid 12 months of on-time payments for all financial obligations.
- Foreclosure Past foreclosures are not necessarily a roadblock to a new FHA home loan, but it depends on the circumstances.
- Collections, Judgements, and Federal Debt In general, FHA loan rules require the lender to determine that judgments are resolved or paid off prior to or at closing.
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What Do You Need To Refinance Your Car
Since it isnt much different than making a car purchase, chances are you already have most of the information you need. However, before you take the leap, be certain that you are eligible to refinance. Consider whether you have defaulted on the lease or are in good standing. Be sure that your and working situation are stable and viable for refinancing. Provided you are eligible for the new loan, the next step is getting your documents together.
Tax information is a common request, so bring your most recent filing records. Additionally, three months of pay stubs from your employer are necessary as well. Plan ahead and bring your banking details. Often, people go with a void cheque to speed up the process and eliminate the chance of errors. You will also need relevant identification. Both a government issued photo ID and a second identification are required. A drivers licence and a passport are both suitable options. Additionally, be sure to have all the necessary details for your vehicle. Registration documents work well for this purpose.
Ensuring that you have all the essential documentation is not only important, but it is also a great way to speed up the process and develop a better rapport with the lender. Preparing ahead of time gives you a good opportunity to highlight all reasons for refinancing in an organized manner.
How Does Student Loan Consolidation Work
There are two basic ways to consolidate your student loansthrough a private lender or through the federal government. Only federal loans are eligible for federal consolidation.
In the case of a private student loan consolidation , a private lender, such as a bank, pays off your private or federal student loans and issues you a new loan at a new rate and with a new repayment schedule. Refinancing makes the most sense if you have high-interest private loans and can obtain a significantly lower rate or better terms with the new loan.
However, with federal student loans, you have another option, which is to combine them into a new direct consolidation loan, through the Federal Direct Loan Program. Your new interest rate will be the weighted average of your previous loans, and you will remain eligible for some of the special features of federal loans, as we’ll explain later.
While you can’t consolidate private loans into a federal loan, if you have both private and federal loans, you can consolidate the private ones with a private lender and consolidate the federal ones through the government program.
Here’s a look at the major pros and cons of both private and federal loan consolidations.
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