If you took out federal student loans to attend college, then you may be paying off loans with a reasonably affordable interest rate. But private loans are a different story.
You may be stuck with a downright exorbitant rate on your private loans, and in that case, you may want to consider refinancing. Doing so could leave you with a lower interest rate -- and lower monthly payments to fit into your budget.
But refinancing isn't the right move for all student loan borrowers. It also may not be an option for everyone. Here are some situations when refinancing could work out.
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1. You have private loans
It's generally not a great idea to refinance federal student loans, because in doing so, you lose the protections federal borrowers are privy to. These include options like forbearance and income-based repayment plans.
Plus, if you have federal loans, chances are, you're already paying a pretty reasonable rate on your student loan debt. But if you have private loans, refinancing could pay off. Private lenders commonly charge large amounts of interest on loans, so it may be possible to shop around and snag a better rate.
2. Your student loans have a variable interest rate
Some private loans have a variable interest rate. This can make repaying your debt challenging because your interest rate and monthly loan payments can change with market conditions. If that's the case, you may want to consider refinancing to a new loan with a fixed interest rate so your payments will be more predictable.
3. Your credit score has recently improved
The higher your credit score, the less risk any lender that loans you money takes on. If your credit score has recently taken a turn for the better, you may want to refinance, because you may be more likely now than in the past to snag a more competitive interest rate on your debt.
4. You have a steady income
Refinancing student loans right out of college isn't always the best move -- especially if, at that point, you haven't secured a full-time job. That's because lenders generally want to see that you have a steady income before loaning you money. But if you've been at your job for quite some time, it may be a good time to look into refinancing your educational debt.
Shop around either way
Refinancing your student loan debt could make it more manageable and affordable. But once you make the decision to refinance, spend some time shopping around to compare offers from different lenders.
It's a good idea to do some rate shopping any time you're looking to borrow money, whether in the form of a mortgage, auto loan, or personal loan. So student loans fall into the same category.
That said, as you go about the process of comparing offers, don't just look at the interest rates you're presented with. Rather, look at the big picture. See what your new loan's repayment terms will entail, and pay attention to origination fees and other costs that may come with putting a new loan into place. A little research could help you land on the best refinancing option so you can maximize your savings and get some relief from the expensive loan payments you may be grappling with now.
