Considering refinancing your student loans? Doing so makes good financial sense for a variety of reasons, but it is important to note that not all refinances are the same. While you are thinking about a refinance, decide what you want to gain from the transaction. This will help you make the best choice for your particular financial goals.
A Quick Payoff
If your main goal is to put this debt in the past, refinancing can help make that happen. Rolling your student loans into a single product during the refinance makes the payoff process easier to manage. Securing a lower interest rate than you had originally will lower the overall amount you pay. Decide how much you can afford to pay each month. If your goal is to pay off the debt as quickly as possible, you will need to increase your contribution. To keep from finding yourself in a sticky financial situation, you may want to keep a longer term on the refinance, and make extra payments toward the principal. Make sure the product you select does not have a penalty for early payoffs.
Lower Monthly Payments
If you are struggling to make your monthly payments, refinancing can give add some breathing room in your budget. Refinance at a lower rate, with potentially a longer-term. Depending on the interest rate you secure and the total amount of you owe, you may lower your monthly payment significantly.
Remove a Cosigner
It is common to have a cosigner for some or all of your student loans. While you undoubtedly appreciated the help while you were in school, once you are employed and you have established credit, you probably want to remove the cosigner. Doing so ensures they are not on the hook if you have a late or missed payment. It also lowers their obligations, which can affect their ability to borrow for other reasons. Even if you have always made the payments on your own, any cosigner will have that debt listed on their credit history as well. As long as you are employed and have a good credit score, removing the cosigner should be an easy process. Removing a cosigner, as well as refinancing in your own name, are common occurrences for recent graduates.
Take Over Responsibility from a Family Member
If your student loans are not in your name at all, you may want to change that. It is not unusual for parents to borrow money for their children to go to school. They may even make the payments. Once you are employed, you may want to take some of that responsibility away from your loved ones. This allows them to redirect their finances towards retirement or other expenses. To move the loans from your family member’s name into your name, refinance your loans. While you could just take over the payments, the account would not be listed in your name. Completing the paperwork to make the change official benefits both you and your loved one. They clear an open account from their credit, while you will continue to build a healthy credit score with on-time payments.