Another month. Another payment. Paying that high monthly student loan installment can get old — quickly. If you’re thinking about refinancing your student loan debt, you’ll want to carefully weigh the pros and cons.
Pros
Here are three key benefits to refinancing student loans:
1. Refinancing can pay off your student loan debt faster
When you shop around for the right refinancing company, you will want to examine the terms available to you. Choosing a term will affect both your interest rate and monthly payment.
Generally speaking, a shorter term means a higher monthly payment after refinancing, so you will want to be prepared for that. If you are financially able to choose the shorter loan term, those sacrifices you make now may be worth it in the long run as pay off your student debt faster.
2. You could release a cosigner
If you have a cosigner on an existing student loan debt, refinancing could release that cosigner and allow you to move forward with your loan independently. Or you could potentially release a cosigner from your current loan based on other criteria.
3. Refinancing student loan debt could lower monthly payments
Refinancing student loans can mean securing lower interest rates—depending on the term of the loan, this could lower your monthly payment.
Cons
As with any big decisions, there are potential negatives to consider when refinancing student loan debt. Here are two:
1. You’ll be ineligible for federal loan programs and grace periods
Federal student loan programs offer income-based repayment plans and generous grace periods—and even loan forgiveness, in some cases. If you refinance federal loans into private loans, you will lose these benefits.
Pro tip! Refinancing is not the same as consolidating. If you have federal loans, consolidation may be a better option.
2. Your total student loan debt costs could go up after refinancing
This can happen if you didn’t get a good interest rate when you secured the loan. The best interest rates are competitive, and if you only barely met the stringent eligibility criteria for refinancing, it’s likely you didn’t get the best rates.
Another example: If you choose to go with lower payments spread out over a longer term, you will pay less every month, but you will pay more over the life of the loan because of interest.
Bottom line
The benefits of refinancing student loan debts can outweigh the drawbacks as long as your credit and income are stable enough to secure a good interest rate and you don’t qualify for federal loan forgiveness.
