Refinancing Private Student Loans: Tips on What to Look Out For

For many college-goers and recent graduates, the sheer pressure placed on their shoulders by college debt is huge. Finding a way to manage them is important and, in many cases, refinancing private student loans to ensure a lower interest and lower monthly repayments, is the best move to make.The basic concept behind refinancing loans is that the existing debt is bought out by a new consolidation loan. The terms of this new loan are better than the original, thus making sure money is saved, though the extent of the savings depends on the lender that provides the loan. Still, it is worth noting that managing student debt is not all roses, and that some compromises need to be made.There are many benefits, of course, but also potential drawbacks too. So, as with all financial matters, is it important to do your homework before taking on any refinancing agreement relating to your student loans. And there are a few matters that should be considered to help in identifying the best termsKnow Your OptionsThe first place to start is to identify what options are actually available when refinancing private student loans. The reason is that not all loans are the same, and not all types can be covered together in one refinancing program. The key difference relates to federal and private loans, which are not always viable to combine.The problem with federal loans is that they come at very low rates anyway, so a refinancing agreement may not be able to offer enough to translate into real savings. Properly managing student debt involves accurately calculating the possible savings, so as to make sure the pressure of repayments is lessened as much as possible.When it comes to student loans from private lenders, however, the higher interest rates provide a greater scope for savings, and a better chance to alleviate the financial pressure. However, other factors to consider include a minimum debt balance (usually $10,000), and no in-school status, meaning only graduates can avail of the refinancing package.Understand the Mechanics of the DealThe basic idea of refinancing private student loans is to lower the monthly repayments that the student or graduate is obviously struggling to meet. This is accomplished in two ways: by lowering the interest rate and by extending the loan term. But those considering refinancing need to consider a few factors first.Reducing the interest rate is simple enough, since managing student debt in this case means buying out the loan. That loan is then marked off as repaid in full, which improves the credit score, thus leading to lower interest rates being charged.However, the extension of the term can also mean lower interest too. If the balance on a $30,000 loan is $20,000, with 5 years left to pay, the monthly repayment will fall dramatically should the term grow to 10 or 15 years.But even with lower interest rates on student loans, the amount paid in interest is more because of the extended lifetime of the loan. The monthly savings are clear, but the overall cost is increased.Check Terms and IncentivesLenders who specialize in refinancing private student loans inevitably have discounts and incentives to attract business. These can range from lower interest for automatic bank repayments to applying for the refinancing package online.However, when managing student debt it is also important to study the terms of the original loan agreement. This is because, after refinancing is done, some incentives will be lost which might otherwise have been of greater benefit. For example, some student loans contain clauses allowing outstanding debt to be forgiven after a certain time.