Should I Refinance My Student Loans?

Choosing to refinance your student loan can be a difficult decision. You must consider your loan type, interest rate, and income. The decision is not easy, so here’s what you need to know before moving forward with it:

What is Student Loan Refinancing?

When you refinance your student loans, you’re allowing the lender pay off your current loans. You’ll then get a new private loan to pay your new lender back. This new loan often comes with better terms than your first loan (such as a lower interest rate or monthly payment).

Reasons to Refinance Your Student Loans

• Lower monthly payments: Refinancing lets you alter your payment plan. Accordingly, you can choose to extend the repayment term and lower monthly payment.

• Pay off loans faster: If you’re in a better financial position and now want to pay off your loans faster, refinancing can let you shorten the payment period. Although this may result in higher monthly payments, it can save you a significant amount in the long run

• Lower interest rates: If you believe you now qualify for a lower interest rate than before, refinancing can help you save thousands of dollars over the loan’s lifetime. Factors such as improved credit score, more stable income, or better macroeconomic conditions can help you secure better rates for your new loan.

• Simplified payments: Refinancing lets you group all payments into one (instead of owing multiple monthly payments to various different lenders).

Reasons NOT to Refinance Your Student Loans

Refinancing may not be the best choice in certain situations:

• Loss of Federal Loan Benefits: Federal student loans provide benefits and protections not available with private loans. These include student loan forgiveness, income-driven repayment plans, and the suspension of payments and interest accrual. Refinancing results in the loss of these benefits. If you plan to utilize these benefits, it’s best to hold off on refinancing.

• Bad Loan Timing: If you are near the end of repaying an existing loan, refinancing may be a bad decision. Doing so would subject you to new terms and longer repayment periods.

How to Find the Best Student Loan Refinance Option

Finding the right refinancing option should be a simple. Use Sparrow to find the best student loan refinance option for you. Sparrow shows you the most important information and simplifies the entire process.