My Student Loans Are Too High – If you’ve got student loans hanging over your head, you know how hard it can be to pay them off—especially if you have an interest rate higher than the Empire State Building that’s slowing your progress.
But one way you can speed up your debt repayments — and save a lot of money in interest — is to refinance. (Yes, that’s the only kind of “funding” we’re good at.) And chances are you’ve thought at least once,
My Student Loans Are Too High
We’re here to answer all of your questions about student loan refinancing and help you decide if it’s right for you — so you can get rid of your student loans once and for all!
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Student loan refinancing is when you take your private loans—or a combination of federal and private loans—and roll them into a new loan. But remember, refinancing can only be done through a private lender.
Here’s how it works: The private lender pays off the balance of your current loan and becomes your new lender. At that point, you will have a new loan with a new interest rate and new repayment terms. The goal here is to get a better interest rate or combine multiple loans into one payment.
But what if you only have federal student loans? With student loan relief coming to an end in 2023, we know you might be looking for a way to soften the blow of payments starting up again.
While you can’t refinance your federal student loans through the government, you can do so through a private lender (and yes, that includes Parent PLUS loans). But you’re not guaranteed to get a lower interest rate on your federal loans when you refinance. Plus, you’ll lose access to federal relief programs and other rights that protect federal borrowers.
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So, if you’re trying to juggle multiple federal student loan payments, you might be better off looking into student loan consolidation (which we’ll cover below) instead.
Consolidation and refinancing are kind of like the Jonas Brothers—they’re related, but they’re different. The purpose of consolidation is to convert several loans into one. The purpose of refinancing is to get a new interest rate (although you can consolidate your loans by refinancing).
Whether or not you should consolidate depends on the type of student loan you have. Federal loans can be consolidated for free through the government with what’s called a direct loan consolidation, while private loans (or a combination of private and federal) must be consolidated by refinancing with a private lender. But student loan consolidation isn’t the right choice for everyone—even if you’ve taken out multiple federal loans.
My student loan interest rate is too high. My variable interest rate makes it hard for me to budget. At this rate, I will have to pay off my student loans forever.
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Look familiar? If so, refinancing may be a good option for you. But there are a few boxes you need to check first to make sure.
So, we’ve talked about whether or not you should refinance your student loans. But are you even eligible? There are four things lenders look at to determine if you qualify for a loan:
If all of this is true, refinancing your student loans may be a good choice. But even if you don’t qualify for a refinance, you can still eliminate your student loans faster than you think—no matter the balance or interest rate!
So, let’s do the math and see if refinancing is really worth it. Imagine you have a $25,000 student loan with a variable interest rate that is currently 7%. You’d probably like to get rid of it, but you haven’t exactly attacked the debt yet — meaning you’re only making the minimum monthly payment of $225. At this rate, it will take you 15 years to pay it off. That’s almost four presidential elections away (and that’s if your interest rates don’t go up)!
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A reinvestment with the right terms can move things in the right direction much faster. Let’s see what happens if you find a lender who can refinance (fee-free) at a fixed rate of 5% over a 10-year timeline. Look at the difference:
Of your minimum debt amount after reinvestment. In fact, that new interest rate and closer payment date will likely encourage you to attack your debt sooner. Refinancing can be like going from Dial-up to Wi-Fi!
Even if you check all the boxes we listed earlier, whether or not you should refinance your student loans really depends on your specific situation.
There are many options for student loan help, but most will only slow you down and keep you trapped in debt.
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It’s what you need to be, and while there may be times when you can’t make the debt repayment progress you want, your goal should be to get rid of as many of your student loans as you can. Because the sooner you can get rid of them, the sooner you can stop stressing about them!
Refinancing your student loans can give you the push you need to pay off your debt. It can replace a variable rate and all the worries it creates with a fixed rate and some peace of mind. It can also lower your interest rate, allowing you to save a lot of money as you pay off your loan. Or it can shorten the timeline of the loan life and move up your payment date.
But refinancing is only one piece of the puzzle. You still need a proven program like Debt Snowball to attack your debt. (Oh, and a good budget. That’s key!)
Since 1992, Ramsey Solutions has been committed to helping people regain control of their money, build wealth, develop their leadership skills and improve their lives through personal development. Millions of people have benefited from our financial advice through 22 published books (including 12 national bestsellers). by Ramsay Press, as well as two radio shows and 10 podcasts, which have more than 17 million weekly listeners. Learn more. Consolidating student loans can save you time and money. Find out how to integrate and the pros and cons of each route.
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In total, they borrowed $1.5 trillion to get a degree, and it hasn’t been easy to pay back. About 1 in 10 people will default on their student loans, and although the average repayment time varies based on the amount owed, it’s likely to take at least 10 years and can be as long as 30 years.
Members of the class of 2019 who took out student loans owe an average of $31,172 and their payments are less than $400 a month. This is a big, unwanted graduation gift, so it’s important to know how to minimize the damage.
If the money you borrowed was all federal loans, you may find easier repayment options by applying for a direct consolidation loan.
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If some or all of your student loans were from private lenders, you should use a refinancing program to achieve the same results.
Consolidation is a more manageable and possibly less expensive way to repay student loans. You combine all of your student loans, get one large loan consolidation, and use it to pay off the rest of the loan. One payment is left to a lender each month.
The typical student borrower receives money from federal loan programs each semester in school. It often comes from different lenders, so it’s not unusual to owe 8-10 separate lenders by the time you graduate. If you continue to borrow for graduate school, add 4-6 other lenders to the mix.
Each of these student loans has its own due date, interest rate and payment amount. This type of scheduling is complicated to keep track of and is part of the reason so many are defaulted. This is also why student loan consolidation is such an attractive solution.
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Federal loans can be consolidated into a direct consolidation loan program. You combine all of your federal student loans into one fixed-rate loan. This rate is obtained by taking the average interest rates of all federal loans and rounding the rate to the nearest eighth of a percent.
Although this method does not reduce the interest you pay on federal loans, it keeps all repayment and forgiveness options open. Some lenders offer lower interest rates by making direct payments or qualifying for a reduction by paying on time over a long period of time.
Student loan refinancing is similar to a direct consolidation loan program in that you put all of your student loans into one loan and make one monthly payment, but there are some important differences to consider before making the decision. do.
Refinancing, sometimes called private student loan consolidation, is primarily for private loans and can only be done through private banks, credit unions, or online.
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