Refinancing student loans can have a lot of benefits. It can help you lower your monthly payments and even save money on interest if you’re paying a higher rate than what’s offered by the new lender. But there are other reasons why it might be worth considering refinancing your student loans, too:
How do Student Loans work?
You can get a loan from the government or a private lender. The government offers loans through the Federal Direct Loans program, and private lenders offer loans through their own programs.
- You’ll pay off your student loan over time in monthly payments.
- Your student loan may be interest-free while you’re enrolled in school, depending on your student loan and whether or not you make extra payments after graduating college (or going into military service).
- Interest rates vary based on your credit profile, the type of loan you take out, and when it’s taken out (for instance, if it was taken out before July 1st, 2010).
Lower interest rates
The interest rate on student loans is often lower than that on other types of loans. For example, it’s typically lower than credit card and mortgage rates. This can be a great perk for those who want to pay down their student loans as quickly as possible, especially since these low-interest rates are locked in for the life of the loan. As the experts at Lantern by SoFi state, it is important to note that “If you choose not to pay the interest that accrues on your loans during certain periods when you are responsible for paying it, the unpaid interest may then be capitalized. This means it is added to the principal amount of your loan.”
When you compare the cost of refinancing a car or home loan with refinancing your student debt, there might not seem like much savings at first glance—but when you think about what else could have been invested over that time period instead, it adds up!
You Can Pay Off Your Debt Faster
You can pay off your debt faster by refinancing your student loans. Refinancing means changing the terms of your loan, such as increasing its length or lowering the interest rate you pay. This will help you get rid of your debt sooner because the sooner you pay it off, the less money you’ll have to pay in interest.
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You Can Combine Your Loans Into One
While refinancing your student loans can help you get a lower interest rate, the most significant benefit is that you can consolidate all of your federal and private loans into one. This means that instead of managing multiple lenders, you only have to pay one monthly payment each month.
This also makes it easier to track how much money you owe compared to how much you’ve paid off—which helps prevent any nasty surprises.
You Can Transfer Parent Loans to a Child
You can also transfer parent loans to a child. The process is similar to refinancing your own student loans, except you’ll need to submit the application for your child. If the loan transfer is approved, the servicer will pay it out on behalf of your child instead of yourself.
Refinancing your student loans has many benefits, and it’s not only for those with poor credit. If you’re struggling with debt and want to pay less interest on your loans, look into refinancing today!