With so much of the focus recently on families that struggle to make ends meet, discussion on the personal finances of students has come up short. Yet the numbers are alarming: more students that ever before are leaning on risky variable-rate loans to finance their studies and the indebtedness of students has been on an upward trend long before the economic crisis of the last few months hit.
Reality
The truth for today’s students is that they carry significant debt burdens, during the college years and after graduation, when they start careers, delay the “real world”, — or take on even more debt – as graduate students. To cope with financial pressures, the refinancing of student debt is an option, especially if you need to lower your monthly payments in order to meet short or long-term basic expenses and career objectives. Here’s what needs to be known about it:
- Private and federal loans need to be dealt with separately. The rates at which you refinance federal loans with be more attractive. Lender requirements vary and can depend on factors like “in-school” status, minimum outstanding debt balance, etc. Call your lender during normal business hours to find out the exact qualifications.
- Lower monthly payments are the outcome of changing either the interest rate or the repayment period. Extending your repayment period is the lesser of the two options since your total outstanding debt balance does not go down. Be very careful since an extended period of repayment comes with the stringd attached of a higher interest rate and/or a longer repayment period.
- Consolidation of all of your federal loans can be an excellent strategy, as the interest rates can be favorable. Consolidating federal loans should not negatively impact your credit score. Also, when consolidating federal loans, you have the added flexibility of frequently changing your repayment plan. For the purposes of refinancing, you will have an easier time evaluating different options when looking at just one lump sum loan instead of a basket of accounts all with different terms of repayment.
- You typically gain a bonus interest rate reduction if you refinance while the loans are still in a grace period.
- Before making a decision, be sure to consider the new interest rate offered in a refinancing scheme and weigh it against your fixed rate debt, as well as your percentage and totals of fixed rate vs. variable rate burdens.
- Deferment and forebearance periods can be reset and thus start over after loan refinancing.
- Loans to be refinanced cannot be in default – which means they have to be in a grace period, some type of deferment, or forebearance.
The ultimate goal of most ex-students is to decrease monthly payments and/or reduce the total outstanding debt burden. To these ends, don’t forget to look at options for student debt foregiveness, especially if you work in the public sector or are part of a nationwide program like the Peace Corps or military. Debt forgiveness can help alleviate some financial burden and ultimately shorten the time to clearing all of your educational debt.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
