5Signs It’s Time To Refinance Your Student Loans
Did you take out a loan to finance your undergraduate or graduate education at your dream college? You’re not alone.
In fact, you’re in the company of 45 million others who made their college dreams come truebut at the cost of thousands of dollars in debt. Almost $38,000, to be exact. However, the unprecedented challenges that come with stepping out of life as a student and entering the dreaded “adult world” can leave you struggling to make monthly repayments.
As you settle into your new job, utility bills may keep piling on and credit card bills will continue stacking up. Perhaps it isn’t so shocking that almost 1 million people default on their student loan payments every year.
One way to deal with mounting debt and avoid the looming possibility of defaulting on your loan is to refinance them. Refinancing your student loans allows you to get a new loan—based on new terms–in place of your existing one.
Not only does refinancing give you greater flexibility in terms of selecting favorable loan terms, it can also result in greater savings.
If you’re wondering when it’s the right time to refinance your student loans, make sure to look out for these signs:
You’ve just graduated
You’ve just graduated from college. You’re in high spirits and the last thing you want to think about are the student loans you racked up trying to get through those amazing four years. However, now may be the perfect time to consider your debt.
Instead of paying off the interest on loans that aren’t favorable for you, the best time to refinance is before you’ve even made a single payment. With student loan repayment plans ranging from 10–25 years, the last thing you’d want is to waste half a decade repaying a loan that you’ll end up refinancing anyway.
Alternatively, you can hit the ground running with a favorable loan from the get-go. Find a reputed refinancer and get a new loan that offers lower interest rates and a suitable repayment term.
Monthly payments are getting more difficult
When you graduate from college and your loan is disbursed in full, the repayment process can either begin immediately or after a few months. While private lenders may decide how much time to allow before the first payment, most federal loans provide a 6-month grace period.
For many students, it isn’t easy to transition to a well-paying job and start their career. On top of that, monthly expenses and multiple outstanding loans can further bog you down. Understandably, you may struggle to maintain monthly payments in lieu of your student loan when you’re in the midst of so much uncertainty.
Being unable to make your student loan payments is a difficult place to be at, but there are options to get you through it. Loan refinancing can save you from repeatedly deferring your payments, enabling lower monthly payments and forbearance in some cases.
Your credit score has improved
Competitive private student loans rely on good credit to secure favorable loan terms. When you first take on a student loan, you may have a less-than-impressive credit score—that is, if you have one at all!
Many people start working toward a better credit score once they start earning a stable income and have settled into their career. When months of dedicated effort start to bear fruit—in the form of a higher credit score—it might be time to consider refinancing.
Good credit scores are an indication to lenders that you’re a responsible and reliable borrower. By showing a record of your past on-time payments, you can build credibility when applying for refinancing. Not only does a good credit score increase your loan approval chances, you may also get better loan terms.
Lenders are more likely to agree to lower interest rates for low-risk borrowers who don’t pose the threat of defaulting on payments.
The interest rate environment is changing
A lot can change in four years. Interest rates that you once agreed on can drastically change, giving you the chance to take advantage of the profitability it offers.
Whether you have a variable rate or fixed rate loan, the Federal Reserve’s decision to alter rates can affect your loans too. Unprecedented circumstances can drive interest rates to considerable lows—as was evident by the near-zero interest rates due to the COVID-19 pandemic this year.
As interest rates are slashed, you can take advantage of the situation by refinancing your loans and receiving a lower rate. Not only does this result in lower monthly repayments, it reduces the overall amount you have to pay too.
You want to start living debt-free
It may seem like stretching your loan repayment over a longer period will give you some much-needed peace. When you’re paying a smaller amount over a 10-year period, you won’t have to worry about the undue financial burden or fear of defaulting.
However, looking at the long-term costs may reveal a different picture altogether. Paying interest on your loans for a longer time means you’ll eventually end up paying a lot more than you would on a shorter-term loan. Paying off your loan sooner may sound daunting, but the higher monthly payments will mean lower interest rates.
Whether you’re feeling restless about being stuck repaying your loans for decades or are looking to make a smart financial decision, refinancing is the way forward. By looking through different rates and terms offered by various lenders, you can find one that suits you best.
Choosing to refinance your student loans isn’t an easy decision, but a personal loan advisor can provide you all the information you need.ELFI Student Loan Refinancingexperts will guide you to a payment plan that suits your life and current needs to help you get started.
About Education Loan Finance
Education Loan Finance is one of the leading providers of student loans, parent loans, and refinancing plans in the U.S. By providing low interest rates and favorable payment plans, ELFI has become a reliable and established lending service of choice for many.