Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.
It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.
What Is Student Loan Refinancing?
Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.
It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.
You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.
Is Refinancing Your Student Loans Worth It?
Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.
Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.
1. Lower Monthly Payments
Refinancing may lower your monthly payments because you may lower your interest rate.
Lowering your monthly payments might also mean that you extend your loan term, however, which means you might not save money over time. In this case, ask your lender how much longer it might take you to pay off your loans. Some private lenders may offer lengthier repayment terms. Private lenders may offer repayment terms varying from five to 25 years.
2. Reduced Interest Rates
If you’re asking this question in the context of reduced interest rates: “Is refinancing student loans worth it?” — the answer is probably yes! Reducing your interest rate may mean that you’ll save money over the life of your loan. However, it’s important not just to assume that that’s the case. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.
Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout your loan term. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.
3. Shorter Repayment Terms
Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.
It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.
4. Opportunity to Save Extra Money
Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.
5. Consolidating Loan Payments
The perks of refinancing aren’t all money-related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, productivity, and more.
Simplifying could also help you avoid missing payments, which can affect your credit score.
6. Adding or Removing a Cosigner
Applying for a cosigner release removes a cosigner from loans.
Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.
Tips for Finding a Lender
Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represents the true cost of borrowing — they include fees as well.
Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter or longer-term length? Choosing your current term length or a shorter term can help you save money.
Using a calculator tool for refinancing student loans can also help you estimate how much money you may save and give you a sense of what your monthly payments might be.
Life Changes That Can Make Student Loan Refinancing Worth It
So, is it worth it to refinance student loans?
Certain life changes and situations can also make refinancing worth it. For example, if you want to get a higher credit score, save more money, buy a house, etc. you may want to consider refinancing.
• Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.
• Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.
• Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.
Learn more in our guide to refinancing student loans.
Explore SoFi’s Student Loan Refinancing Options
Refinancing can be a good idea if you are interested in securing a lower interest rate, a lower monthly payment, or simplifying your loan repayment by having only one monthly payment. It’s important to weigh all the pros and cons and look at lenders’ apples to apples. Comparing interest rates, fees, repayment terms, APRs, and more will give you the clearest understanding of your best possible outcome.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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7 fun ways to save money
Whether you’re building your emergency fund or putting a portion of your paycheck away for you and your family, chances are you’re saving money. It’s possible this all-important financial habit can feel tedious and boring, but with a little creativity and determination, saving can be interesting, dynamic and exciting.
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Not sure how to make saving money fun? You could start by identifying your goals. Are you saving up for a big purchase, like a down payment on a house? Are you saving for your child’s future education?
Once you’ve figured out what you want to accomplish, you could determine a target amount of money you’d like to save. While this number might change over the course of your savings journey, you can always readjust your plan.
If you have an idea of how much money you’d like to work toward saving, you can consider diving deeper into your finances to pinpoint realistic objectives.
Once you’ve reviewed your individual financial circumstances and have a better idea of your savings goal(s), you could try these fun ways to save money.
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With the right company, even the most mundane tasks can be enjoyable. You could talk about your savings goals with your friends and family members to potentially identify a saving buddy with similar objectives.
An ideal saving buddy will be supportive of your financial goals, flexible about changing plans in order to accommodate your specific savings needs and have a positive money mindset.
Checking in with your buddy regularly could help keep you both on track and you can celebrate each other’s accomplishments. If you’re stressed about how to make saving money fun, you could brainstorm creative tactics with your saving buddy and implement them together.
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Saving money does not have to be synonymous with missing out on exciting opportunities around you. You could enjoy free activities offered in your area.
Perhaps your local park offers free theater performances or concerts in the summer, or your area bookstore hosts interesting literary panels and author discussions with no attendance fee. Think about the resources provided by your local library, such as book clubs, language exchange programs, craft nights and movie screenings.
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A potential hands-on and fun way to save money is adopting a DIY (do-it-yourself) attitude. You could create things using materials you already own instead of buying new products. When meal-prepping for the week ahead, think about recipes that incorporate ingredients you already have in your pantry.
You could make your own household cleaners out of vinegar, lemon rinds and herbs or face masks and toners using fresh ingredients like avocado, tea, honey and oatmeal. There are ways to reuse materials that might otherwise be thrown out or recycled: Newspapers and coupon booklets could make great wrapping paper, and old cereal boxes might be repurposed into desk organizers.
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If you’re looking to break up the monotony of saving, you could consider incorporating games and challenges into your overall savings plan. A friendly competition with your saving buddy could be seeing who can save the most money every week, month and/or year.
Creating small rewards for reaching your goals might be an incentive, too. (Bonus points if these rewards are free!) No-spend weeks, where you refrain from spending any money for seven days, also might help with saving. You could make it fun by taking out a $20 bill from the ATM at the beginning of each month, for example and not spending it.
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Getting serious about saving money doesn’t mean you need to give up “luxuries” such as exercising, new clothes and accessories, or home goods. Trading skills and swapping goods are two potential examples of how to make saving money fun while not depriving yourself of the things you want.
You could go to your favorite yoga studio and ask if they have a work-trade program where you can clean or complete administrative duties in exchange for classes. A clothing swap with your friends could refresh your closet at no cost. You might also consider an informal exchange with skilled friends.
For example, if you’ve been eyeing an original painting from your artist pal but don’t have the funds to pay her, you could offer your website design services (or some other helpful skills) for the painting.
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Sometimes, cutting down on expenses might not be the most effective way to reach a savings goal. It might be easier, in some cases, to make a bit more money than to reduce costs, especially if you are spending more than 50% of your income on non-discretionary expenses like groceries and debt payments.
A financial advisor can help you determine if increasing your income is an appropriate action based on your individual financial profile.
If so, you could reflect on your particular skills and/or hobbies to see if there is a way to translate one of them into an income stream.
For example, if you love to knit, you could start an online store for your yarn creations. If you have a knack for stringing words together, you could offer your writing or editing services in a freelance capacity. A successful side hustle could help bring additional money into your bank account and add more fun and enjoyment in your life.
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Putting away money for your future does not need to be a boring task; there are countless fun ways to save money that could be customized to your specific financial needs and wants.
Starting to save today—even in small amounts—might help prepare you for even more fun in the future.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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