What Is Student Loan Refinancing?
For many people, taking out a student loan to put themselves through college is a necessity. On average, students graduate with over $30,000 in student loans and those who attend grad school end up with even more -- sometimes up to six figures for a master's or Ph.D.
Over time, these loans end up costing you more than your actual loan amount due to the extremely high interest rate on the principal amount. The only way to truly get rid of student loan debt is to pay it off completely; however, there are still other options to reduce the heavy cost of your loan.
Student loan refinancing can help you relieve debt through several means:
- First, any cosigners you have can be released from having any more liability on your loans.
- You can also save money by replacing the entirety of your student loans with brand new terms like a lower interest rate or a different term length.
- Finally, you can combine multiple loans into a single loan and pay off that lump sum over time, preventing you from having to keep track of too many financial obligations and saving you thousands of dollars in interest over several years.
Student loan refinancing is not for everyone since you must qualify to reap the benefits. Improving your credit and having a steady stream of income allows you to receive the best interest rates and loan terms.
Additionally, any benefits you received from your federal student loan (like loan forgiveness) can be lost when refinancing.
How Do I Get Started?
There are two options to begin the refinancing process:
- Federal student loans can be refinanced through a government program called the Federal Direct Consolidation Loan Program.
- Private loans are possible to refinance through a private bank, credit union, or other private lending institution.
Both of these types of loans can be consolidated into a single loan with lower interest rates and different terms.
If you are ready to take the first step into refinancing your loans and saving thousands in the long run, look to our top picks for student loan refinancing.
Does refinancing a loan hurt my credit?
Submitting an application for loan refinancing will generate a hard inquiry, which causes a small and temporary drop in your credit score. Loan refinancing may also impact your credit since your original loan will be paid off early and replaced by a new loan, thus reducing the age of your accounts.
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