It isn’t uncommon for a person to have to deal with student loan debt sometime during their life. Simply put, school is expensive, and not everyone has the money required just laying around, ready to be thrown at an expensive degree.
This means that thousands of young people with a relatively short credit history take out loans to further their education. The terms on these initial loans are often much less favorable than those offered to people with a more established credit history and earning potential. But then, after schooling has been completed, there’s a good chance any individual’s financial health has gone through serious changes, and they might be eligible for better terms. To actually make use of these improved terms, the person with the loan will have to refinance. Refinancing is essentially just nixing your old loan in favor of a new one. Either the same institution or a new one will buy the previous debt, and you have to pay them back under the new terms.
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Here are some pros and cons to refinancing your student loans:
Pro #1: Release of a Cosigner
If you had to get your parents or a family friend to cosign on your loan, they are essentially tied to your financial success. If you default on the loan, their credit score will suffer, too. This can result in a lot of butting of heads in a family as well as increased overall stress. When the loan is refinanced, chances are you can release them from their obligations to the loan and have it entirely in your name. This way, the only ones worrying about you making your payments are yourself and the financial institution.
Con #1: Removal of Federal Benefits
Federal loans often come with a myriad of benefits ranging from flexible payment plans to loan forgiveness. When you refinance a federal loan into a private one, you lose out on the ability to take advantage of any federal incentives relating to having a federal loan.
Pro #2: Consolidating All of Your Loans Into One Payment
Loan refinancing doesn’t have to deal with a single loan. You could possibly put all of your loans together by taking an online cash advance into a big one that will require just one monthly payment. This can lower the interest rates of all of your loans, as well as simplify your expenses.
Con #2: Bye Bye, Grace Periods
Some student loans are given under the assumption that the person who has been lent the money won’t be in a position to repay it until they’ve graduated, so a grace period is created where they don’t have to make any payments. In a refinanced loan, the loan is expected to be repaid immediately, with payments starting as soon as the next month. If you’re considering refinancing, wait until all grace periods have ended.
Conclusion
Like any financial decision, refinancing requires a specific set of circumstances to be desirable. Any tips for paying off student loans need to be carefully considered, and you need to figure out what your goals are with refinancing. Do you want to pay less overall, or just less on a short-term basis? Depending on your current credit score, you might even be lucky enough to enjoy both.