Should I Refinance My Student Loans?
A student loan refinance can reduce your monthly payments, and release a co-signer from its obligation. And, when you pair your refinance with a small amount of life insurance, you wipe out the biggest objection to student loan refinancing there is.
What Is A Student Loan?
A student loan is a loan which helps pay for the costs of education after high school. Student loans cover tuition, living expenses, books, and school supplies.
There are 5 main types of student loans:
- The Stafford Direct Subsidized Loan
- The Stafford Direct Unsubsidized Loan
- The Direct PLUS Loan
- The Federal Perkins Loan
- Private Student Loan
Student loans with the word “Direct” in them are made by the U.S. Department of Education, and the Federal Perkins Loan program is government-backed, too.
You don’t need to show financial need in order to apply for a student loan.
You can be awarded a student loan regardless of your personal income, or the income of your parents; and no matter how much money you or your family has in the bank. The loan you’re awarded, though, will depend on these factors.
Refinance Your Student Loans
Stafford Direct Subsidized Loans
Direct subsidized loans are awarded to students who show a financial need; who might otherwise not be able to attend college, trade school, or graduate school.
Students pay zero interest on their direct subsidized loan while they’re in school at least part-time; and, for the first six months after graduation. The government waives the loan’s interest charges in full while the student is within this window.
Perkins loans are a variation of the direct subsidized loan, reserved for students with extreme financial need. They offer below-market interest rates, which makes loans more affordable.
Students pay zero interest on their direct subsidized loan while they’re in school at least part-time; and, for the first nine months after graduation. The government waives the loan’s interest charges in full while the student is within this window.
Stafford Direct Unsubsidized Loans
Direct unsubsidized loans are for students and families with the income and savings to pay for a college, trade school, or graduate school education, and who prefer pay for that education over a longer period of time.
Direct unsubsidized loans can be a budgeting tool. Instead of making a complete tuition payment at the start of each semester, the loan is used to split payments into smaller, more manageable pieces.
Interest must be paid on a direct unsubsidized loan from its first day. There is no grace period like with other U.S. Department of Education-backed loans.
PLUS loans cover the costs of going to school that don’t get covered by a student’s other government-backed loans. They’re for a smaller amount than other U.S. Department of Education loan.
Interest rates can be high, relative to other loan types.
Parents applying for the Direct PLUS loan program must have a child attending college at least part-time; and, students applying for a Direct PLUS loan must be attending graduate school or trade school at least part-time. Direct PLUS loans are typically not repaid until the student has graduated and six months have passed.
College students cannot apply for a PLUS loan in their own name.
Private Student Loans
Private student loans are student loans made by banks, lenders, and credit unions; and companies that specialize in making loans for student education.
Private student loans can be more flexible than government-backed ones. They offer more choices to students and their families, and can fill gaps in funding when government-backed loans are made for not enough money.
It’s common to see students using private student loans instead of PLUS loans, for example, because interest rates tend to be lower with the private student loan option. Private loans can be a better option for students than direct unsubsidized loans for the same reason.
Refinance Your Student Loans
What Is A Student Loan Refinance?
To refinance a student loan means to replace your existing student loans with a new student loan, with a new interest rate and payback terms.
Refinancing a student loan is a simple, quick transaction.
You do an online student loan application, get approved for your loan by a lender, and, in about 20 days, start making your new, lower student loan payment.
Any type of student loan can be refinanced. You can refinance student loans used for college, trade school, or graduate school; or for prep school or anything else.
You can refinance student loans from the U.S. Department of Education and student loans from private lenders, too.
When your student loan refinance is complete, your old loans are paid off and done; replaced by a new student loan that costs less money each month.
You can save a lot of money with a student loan refinance.
Great Reasons To Refinance A Student Loan
You can save a lot of money when you refinance your student loans. Switching to a lower interest rate can make a positive, meaningful impact on your monthly budget.
Refinancing student loans also frees up money for other parts of your life, like paying for a wedding or saving for a downpayment on a home.
People always ask: “Should I refinance my student loans?” Here are the scenarios in which you should absolutely consider it.
1. You’re already paying extra to your student loans each month
Most government-backed student loans come with a 20-year term, which means that students get 20 years to pay them back.
A lot of people, though, send more than the required payment to their lender each month. They want to pay their loans off faster.
If this scenario describes you — if you’re a person paying your loan as fast as you possibly can — consider a student loan refinance. The best way to pay your loan faster is to reduce the amount of money you have to pay for interest.
Refinance to a student loan with a lower rate and you’ll be debt-free sooner.
2. You want to give your parents a co-signer release from your student loan
Student loans are often co-signed between a parent and a child. This means that multiple people are responsible for payments on the loan, and everyone’s credit is in play.
Maybe that worked for you at the start of your education, but now you’re older and working a job. You don’t want to burden your family with the cost of your loans. You feel wrong about it.
Refinance your student loan to release your co-signer. Your new student loan will be in your name only.
Meanwhile, your co-signer’s credit will show payment made in full and a zero-dollar balance. This will make it easier for your co-signer to purchase major items in the future such as a home or a car, and improve their credit score.
Release Your Student Loan Co-Signer
3. You’re buying a house in the next two years
Refinancing your student loans today will help you when you’re ready buy a home tomorrow. This is because of how mortgage approvals works.
Very few people pay cash for homes. Instead, they use loans designed for buying real estate. These loans are called mortgages.
To get approved for a mortgage, home buyers are asked to show what they earn from their jobs, and what they’re required to pay each month on credit cards, car loans, and more.
Student loans are a part of this calculation.
If you’re buying a home in the next few years, then, consider doing a student loan refinance to lower your payments and make it easier to get mortgage-approved. The less you pay for loans, the more house you can afford when you buy.
At today’s mortgage rates, every $100 saved via a student loan refinance adds $22,000 to your maximum home purchase price, assuming a low-down payment loan such as an FHA mortgage.
4. You have a life insurance policy in place
Life insurance policies protect you from the biggest risk of a student loan refinance. So, if you have a policy in place, it’s safe for you to refinance. Here’s why.
Government-backed student loans — direct subsidized student loans, direct unsubsidized student loans, PLUS loans, and Perkins loans — come with built-in protection against death. All U.S. Department of Education student loans get canceled the moment the borrower dies.
A refinanced student loan no longer carries this promise. Life insurance, though, does. When you die with a life insurance policy, the life insurance company sends a payment to your family, which is used to pay off your loans.
Life insurance policies can cost less than $10 per month for a $250,000 payout — more than enough to pay off school loan debt.
Disqualifiers: Reasons You Shouldn’t Refinance A Student Loan
There are a lot of reasons to refinance a student loan.
The most common reason why people refinance their student loans is to save money. Refinancing student loans can lower your monthly payments by a lot. It can help you pay your loans off in fewer years, as well.
But, saving money isn’t the only reason people refinance their student loans.
When you refinance a student loan, you can request the removal of a co-signer from your loans; and, you can make it easier to get a mortgage the next time you buy a home.
Despite the benefits of a student loan refinance, there are certain circumstances in which you’re best to do nothing. This is because loans from the U.S. Department of Education have built-in protections for certain groups of borrowers.
1. You’re a teacher in a low-income area
If you’re a teacher in a low-income elementary school or secondary school, don’t rush to refinance your student loans.
This is because student loans backed by the U.S. Department of Education — the Stafford Direct Subsidized Loan, the Stafford Direct Unsubsidized Loan, the Direct PLUS Loan, and the Federal Perkins Loan — contain a clause which forgives a portion of a teacher’s student loan debt after five years of service.
To qualify, a teacher must work in a school for five consecutive years; the school(s) in which the teacher works must serve a low-income student body; and, the teacher must be certified by the state.
The government will erase up to $17,500 of a teacher’s student loan balance; and states and cities may offer additional help, too.
2. You’re about to face a major life issue
Student loans from the U.S. Department of Education give protection from life events including major illness, extended unemployment, and the call into military service.
It can be difficult to make student loan payments during these times. The government recognizes this and allows borrowers to delay payments until they’re ready to resume.
A refinanced student loan doesn’t offer such protection.
You can’t predict when you may have a major life event, but if there’s a possibility that you’ll lose your primary source of income; or, that you’ll be treated in a hospital and unable to work, don’t refinance your student loans in order to reduce your payments. It may be better to defer your loan instead.
3. You are permanently disabled
If you become permanently disabled, skip the student loan refinance. The government may be willing to waive your payments instead — and your remaining student loan balance.
A refinanced student loan won’t usually offer similar protection.
To qualify for the total and permanent disability discharge of your government-backed student debt, you must show proof of disability using a letter from a physician, a letter from the Social Security Administration, or documentation from the Department of Veterans Affairs.
See Your Refinanced Student Loan Rate
For the majority of people with student loans, refinancing is a sensible, money-saving move.
You can reduce your monthly payment with a student loan refinance, and release a co-signer from its obligation. You can also pair your student loan refinance with a life insurance policy, making sure your unexpected death won’t burden your loved ones financially.
Get started with your student loan refinance today. Start saving money.
Refinance Your Student Loans