Refinancing Private Student Loans: When Should You Consider It?

When you applied to college, a private education loan may have felt like the perfect answer for your funding gap. Fast forward a few years, your income, credit profile, or financial goals may have changed. That kind of thing could make refinancing worth considering.

With private student loans, refinancing is sometimes done by simply taking out a new private loan with new terms (such as interest rate and repayment period). The objective of varied motivations could be an adjustment in the interest rates, monthly obligation, or reimbursement period.

However, there should be hard data for whether refinancing makes sense or whether it just means taking advantage of a lower headline rate.

What Does Refinancing Do?

Refinancing is the process of replacing one or more existing private student loans with a new loan. The new lender pays off the old balance and then you owe payments to the new loan.

That new deal could be a loan with either a lower interest rate or longer repayment period. You may also see an increase or benefit of your monthly payment.

Compare the total cost between both loans before making any move.

When Could Refinancing Make Sense?

Your financial condition might have changed from when you first obtained the loan. So, something like now you have a better credit history or your income has increased, etc.

• Potentially reduce your interest rate
• Change your repayment period
• Adjust your monthly payment
• Consolidate loans into one payment

Rates vary from lender to lender and borrower to borrower.

Look Beyond the New Rate

The loan will cost less at a lower interest rate; however, the term over which repayments are owed needs to be considered too. Your term may be extended for a lower monthly payment at a higher total interest expense.

If you are considering refinancing options for private student loans, look at the entire offer.

Check the:

• New interest rate
• Loan term
• Monthly payment
• Total repayment amount
• Fees and charges

This isn’t necessarily true, so don’t equate a lower monthly payment to actually saving money.

Check the Fine Print

Before you accept loan offer, read the new loan agreement. Keep an eye out for prepayment provisions, late-payment terms, variable-rate requirements, and any other fees.

You should also look into any benefits or protections that accompany your current loan and how refinancing might change those.

Take the Decision with Real Numbers

It is possible to refinance a private student loan, but refinancing may not necessarily reduce the overall cost of your debt. The best option here will depend on the terms of your existing loans as well as what you are able to get in offers.

Assess multiple refinancing marketplaces for private student loans, compute overall repayment cost for every one loan, and opts based on all of the terms, not just that simple headline number.