How Refinancing Student Loans Can Lower Monthly Financial Obligations
The financial drain of repaying college loans can be debilitating. An effective way to lower the monthly financial pressure is by refinancing student loans, with lower rates over a longer loan term.
The whole idea of refinancing financial agreements is to alleviate the pressure on the borrower. This is done by buying out the balance of the existing loans with one single loan, thus clearing college debt in one swoop, and replacing it with a more manageable loan with better terms.
However, there are certain compromises that need to be made too. It is, therefore, important to know the terms of the deal before committing to have student loans repaid in this way.
The Mechanics of Refinancing Agreements
The first thing to understand is what exactly happens when refinancing student loans, and how the benefits can be secured. Often students will have taken out a number of loans to cover tuition fees each year and living expenses, thus raising the total debt to as much as $50,000 to $75,000 by the time of gradation.
The challenge of clearing college debt of that magnitude is considerable. With different loans and different interest rates, the monthly repayments could be as high as $800. But by consolidating the balances through one consolidation loan, a single interest rate can be applied. Repayments are lowered by extending the loan term, perhaps from 10 years to 20 years.
The result is that monthly repayments due can be reduced to as little as $300, freeing up as much as $500 to be spent on other expenses, like food and utility bills. In this way, the student loan become very affordable, and the pressure to repay is lifted considerably.
Loan Options to Consider
Knowing the best options when refinancing student loans comes down to a number of factors. The most significant amongst them is whether the loans are from private or federal sources. The reason is that these loans have very different terms, and while refinancing might be of great benefit in relation to one, it may have no benefit in relation to the other.
Federal loans, such as Stafford Loans or the Perkins Loans, are available at very low rates, and the financial benefits they offer would only be cancelled out by a refinancing agreement. However, there are some federal refinancing loans available, designed to clear college debts created specifically by federal loans.
Private loans, however, are usually available at higher interest rates because lenders want to make profits. These student loans are perfect for refinancing, and borrowers can take the maximum benefit from it.
What to Look Out For
The overriding benefit of refinancing student loans is that the pressure of making repayments is lifted. But there are additional incentives to be found, that are sometimes offered by lenders seeking to build their competitiveness. For example, online applications can carry a 1% reduction in interest rate, while arranging automatic payments from your bank can also result in discounts.
The challenge of clearing college debt is made a lot easier through a refinancing agreement. And in the end, the savings secured as a result have a domino effect, with the extra cash used to deal with other debts.
Still, be sure to read the small print carefully before signing up to any agreement, and understand what the consequences of repaying student loans in this way might be.
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ABOUT THE AUTHOR
Devora Witts is a certified loan consultant who helps people get approved for Loans for People with Bad Credit and Bad Credit Mortgage Loans. To get aid with your financial situation you can visit her at http://www.badcreditloanservices.com