what is student loan refinancing

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Student loan refinancing can be an option to help you pay a lower interest rate on your student loans. How does this work? We’re breaking it down in this lesson so you can decide if refinancing your student loans is the right choice for you!

what is student loan refinancing

student loans

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  • Overview
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what is student loan refinancing

student loans

Student loan refinancing can be an option to help you pay a lower interest rate on your student loans. How does this work? We’re breaking it down in this lesson so you can decide if refinancing your student loans is the right choice for you!

What student loan refinancing means

 

When you refinance your student loans, a private lender pays off your current loans and gives you a new loan with new terms. 

 

Why would you want to do that? 

 

Well for starters, it’s free and it often saves you a lot of money because the new lender offers a better interest rate.  

 

When is a good time to refinance your student loan?

 

It depends on your situation, but if you’re eligible, you might want to look into it. It could help you maximize potential savings. You can even refinance again to get an even lower rate. 

 

If you decide to refinance, you will apply to do so directly with the new lender. Be sure to check out multiple lenders for the best rate! 

 

Should I refinance my student loan?

 

First things first, not everyone is actually qualified to refinance their student loans. You need good credit—often a score in the high 600s or above—and steady income. 

 

Refinancing your student loan isn’t right for everyone. For example, you might not necessarily want to refinance your loan if it increases the time it takes to pay it all off. 

 

Pros of loan refinancing. 

 

Aside from the fact that you can save thousands of dollars, here are some of the other benefits to refinancing your loan, including:

 

  • Simplification. Refinancing your loans can allow you to group together multiple monthly payments to various lenders and make only one payment. Streamlining never felt so good. 

 

  • Pick your payment plan. If you qualify for refinancing, you can set the new term of your loan. That means you could potentially stretch a five-year loan into a ten-year loan, for example, meaning a cheaper monthly payment over a longer period of time. Or you can condense the timeline if you want to get aggressive and pay things off at a quicker pace. 

 

  • Rosier financial outlook. Whether it’s saving money on student loan interest overall, on a monthly loan payment, or both, your financial outlook is going to look better. When you make on-time payments, your credit score improves. When your credit score improves, you can qualify for better credit cards, mortgage rates, and so much more. 

 

Cons of loan refinancing. 

 

Refinancing is not for everyone. Here are some reasons you might want to pump the brakes when it comes to refinancing your student loan. 

 

  • Longer repayment period. It might seem appealing to get a lower monthly payment by refinancing your loans. But if you’re halfway through paying them off, stretching out the number of payments just to save some money each month might not be the best idea. 

 

  • It’s non-reversible. Not to sound too doom-and-gloom, but if you refinance federal loans with a private lender, you can never go back. That might not seem like a big deal, but some private lenders don’t offer the same protections a federal loan would for worst-case scenarios like losing your job. 

 

It’s important to read the fine print when you’re considering refinancing your loans! It might be a great decision that saves you thousands of dollars. But it could also not be right given your unique financial situation. 

what's in this lesson?

Student loan refinancing can be an option to help you pay a lower interest rate on your student loans. How does this work? We’re breaking it down in this lesson so you can decide if refinancing your student loans is the right choice for you!

Transcript

What student loan refinancing means

 

When you refinance your student loans, a private lender pays off your current loans and gives you a new loan with new terms. 

 

Why would you want to do that? 

 

Well for starters, it’s free and it often saves you a lot of money because the new lender offers a better interest rate.  

 

When is a good time to refinance your student loan?

 

It depends on your situation, but if you’re eligible, you might want to look into it. It could help you maximize potential savings. You can even refinance again to get an even lower rate. 

 

If you decide to refinance, you will apply to do so directly with the new lender. Be sure to check out multiple lenders for the best rate! 

 

Should I refinance my student loan?

 

First things first, not everyone is actually qualified to refinance their student loans. You need good credit—often a score in the high 600s or above—and steady income. 

 

Refinancing your student loan isn’t right for everyone. For example, you might not necessarily want to refinance your loan if it increases the time it takes to pay it all off. 

 

Pros of loan refinancing. 

 

Aside from the fact that you can save thousands of dollars, here are some of the other benefits to refinancing your loan, including:

 

  • Simplification. Refinancing your loans can allow you to group together multiple monthly payments to various lenders and make only one payment. Streamlining never felt so good. 

 

  • Pick your payment plan. If you qualify for refinancing, you can set the new term of your loan. That means you could potentially stretch a five-year loan into a ten-year loan, for example, meaning a cheaper monthly payment over a longer period of time. Or you can condense the timeline if you want to get aggressive and pay things off at a quicker pace. 

 

  • Rosier financial outlook. Whether it’s saving money on student loan interest overall, on a monthly loan payment, or both, your financial outlook is going to look better. When you make on-time payments, your credit score improves. When your credit score improves, you can qualify for better credit cards, mortgage rates, and so much more. 

 

Cons of loan refinancing. 

 

Refinancing is not for everyone. Here are some reasons you might want to pump the brakes when it comes to refinancing your student loan. 

 

  • Longer repayment period. It might seem appealing to get a lower monthly payment by refinancing your loans. But if you’re halfway through paying them off, stretching out the number of payments just to save some money each month might not be the best idea. 

 

  • It’s non-reversible. Not to sound too doom-and-gloom, but if you refinance federal loans with a private lender, you can never go back. That might not seem like a big deal, but some private lenders don’t offer the same protections a federal loan would for worst-case scenarios like losing your job. 

 

It’s important to read the fine print when you’re considering refinancing your loans! It might be a great decision that saves you thousands of dollars. But it could also not be right given your unique financial situation. 

Additional Resources

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