If you're reading this post, it means you're already thinking about taking control of your student loans. Congratulations — you're moving in the right direction. While in school, the norm is to simply follow the advice of your financial aid officer, sign on the dotted line, get your money, then go to class. It isn't the most empowering experience, and sticker shock may settle in when it comes time to actually repay your loans.
Welcome to the world of refinancing, which lets you lock in a lower interest rate and, in turn, keep more of your hard-earned paycheck. While it's true that interest rates are on the rise, and they're expected to continue ticking upward, the news isn't all bad. Moving your student loan balances to a new fixed-rate loan as soon as possible can help you spend less overall than you would if you waited.
The time to refinance your student loans is now; here's why.
Refinancing means paying off your student loan balances with a new private loan that has a different (usually lower) interest rate and different protections than before. In addition to putting all your student debt in one place, giving you the convenience of having to make only one monthly payment, this strategy can save you a significant amount of money.
Imagine you have $40,000 in student loan balances across multiple public and private loans, and your interest rates average out to 6 percent. Assuming it takes you 10 years to pay everything off, you'll spend a total of $13,290 in interest by the time you get there. Refinancing to a new loan with a 4.5-percent interest rate slashes that number by over $3,500.
To figure out how much you'd save, plug your numbers into CommonBond's refinancing calculator.
We're currently living in a time that's uniquely ripe for refinancing. Again, interest rates are rising. The monthly payment on your current loans could very well go up if you have a variable-rate loan — but not if you've got a fixed-rate loan. In other words, failing to lock in a lower rate now is a missed opportunity, financially speaking, especially since no one can really predict when the economic climate will be this way again.
to keep in mind, however, that there are still a lot of moving parts at play
when it comes to refinancing. Begin by unpacking all the details of your
student loans — your minimum payments, interest rates, total balances, and
repayment timelines. How much are you shelling out each month? And, more
importantly, how much will you ultimately pay in interest over the life of each
individual loan? The answers should help guide you in determining whether or
not refinancing is for you.
One other important side note: to qualify for a refinance loan, be prepared to prove that you've got a job with a steady incoming cash flow. A strong credit score is also key. That's not to say that a less-than-perfect score makes you ineligible, but you may not land a new rate that's necessarily lower than what you're already paying. Again, it all comes down to running the numbers.
If you don't hit every single refinancing requirement, don't fret—enlisting a cosigner is a great path to eligibility. Making on-time payments will also build your credit, and you can actually release them from the loan after making two straight years of timely, complete (principal plus interest) monthly payments.
If you're a graduate student, refinancing may be particularly beneficial -- graduate federal unsubsidized loans and graduate PLUS loans typically have the highest rates of all. For those staring down a mountain of student debt, making the minimum payment and calling it a day will likely cost you big time over the life of the loans.
If refinancing makes sense for your financial big picture, now is inarguably the time to do it. And even if refinancing isn't your best option at the moment, you've at least boosted your personal knowledge around your student loans, which is never a bad thing. (We'd say it's pretty empowering, actually.)
At the end of the day, refinancing is easy and costs nothing. Feeling inspired? Click here to get started.