4 Factors To Consider When Refinancing A Student Loan
During the process of taking out a student loan, the applicant is asked to sign a promissory note. While this is a necessary aspect of the process, many students do not take the time to properly read the terms of these agreements before signing on the dotted line.
By signing a promissory note, a student agrees to not only pay back the amount that they borrow, but also the associated interest. There are also various terms and conditions that must be followed.
Fortunately, a student loan can be refinanced, providing the applicant with a much more favorable repayment plan. Here are four important factors to consider when refinancing a student loan.
1. Exploration of all Options
While refinancing is the best way to provide yourself with an easier repayment plan for your student loan, it is far from the only plan available to you. Those who have obtained federal student loans and wish to maintain the same protections that they have become accustomed to should speak with their loan servicing company before proceeding. In some instances, the monthly rate of payment can be lowered if the applicant agrees to automatic withdrawals.
2. Changes Made To Loan Terms
Refinancing can be immensely helpful, but it can also change the terms of your loan. The decrease in your interest rate will typically depend on your current credit score, as well as the presence of a cosigner. If you already have a low interest rate, refinancing can cause you to pay more. Replacing a federal loan comes with many benefits, but it is important to know the full scope of what you are agreeing to.
3. Know The Difference Between Consolidation and Refinancing
There is a common misconception that consolidating a student loan works in the same manner as a refinance. While both options are very similar, there are some crucial differences for applicants to bear in mind.
A federal student loan consolidation will not lower your interest rate, even when it replaces your old loan with a new one. Consolidation and refinancing will not lower your interest rates, but they will provide you with more repayment options. Be sure to research the totality of each choice before making a final decision.
4. Federal Refinancing Is Unavailable
When you obtain a federal student loan, the terms of the agreement are set by Congress and these rates are not adjustable. They are fixed by law and even if you receive a high paying job and boost your credit score after graduation, there is no altering your rate.
While you can refinance a federal loan so that it becomes a private loan, you will not be able to refinance a federal or private loan into a different federal loan. Legislation has been proposed that would alter these regulations, but no meaningful changes have been made at the present time.