by Anza Goodbar
(last updated November 22, 2011)
Student loans can be costly to pay back especially if you have a post graduate degree. Refinancing your loans may offer many benefits including one monthly payment, a lower interest rate, extended repayment terms and no prepayment penalties.
You can lock in a lower rate that will be good for the life of the loan. Federal student loans can be refinanced without any fees. Since these programs are federally backed, credit checks are not required.
You can consolidate all of your federal loans into one easy payment by refinancing. This repayment option can be extended out to up to twenty years. Refinancing can also reduce your monthly payment up to 60%. Having a reduced debt to income ratio will also have a positive impact on your credit rating. Keep in mind that defaulting on a student loan can be devastating to your credit rating.
Since federal student loan refinancing programs are federally guaranteed, there is no cost to process the refinance. Federal loans are financed at a lower rate than private loans, so keep them separate when you refinance.
Private education loans are a bit different. Most loans do not compete in price with federal loans, so the main goal with a private loan would be to consolidate into one monthly payment. A private student loan refinance will be based on your credit rating. Pull a free credit report before apply for a loan to see if there are any items that need attention.
When obtaining a private refinance on student loans, look for a fixed interest rate. This will lock in the interest rate for the life of the loan and you won't have to worry about your payments fluctuating for the life of the loan. Note that interest rates on a private loan refinance are set by the lender and are not mandated by the government, so you can expect to pay a higher rate than you would on your federal loans.
As you shop for your private loan refinance, be sure to ask what fees will be associated with the transaction and if there are any prepayment penalties. Some lenders also have a minimum and maximum loan amount as well as guidelines on repayment term lengths. Read the fine print while determining which would be the right loan program for your financial needs.
Keep in mind you can save money on your student loan refinances by keeping your federal and private loans separate. Obtaining a lower interest rate and/or elongating the repayment term of the loan will also offer savings on your monthly payment.
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