Student loan debt is a phrase that looms over many current students and recent graduates’ heads. However, knowing all your options when it comes to student finance can be tricky.
Until after graduation, many students don’t really think too hard about actually paying off student debt. Some don’t even know that refinancing loans is an option. The world of loans and student loans at that may seem daunting, but if you’re looking at refinancing your student loans, here are nine questions to ask yourself before signing the papers.
1. Why am I refinancing?
The first question you should be asking yourself is why you’re refinancing your loans. Do you genuinely need to refinance for the money or are you just not committing yourself to paying them off? Make sure you’ve looked at all your options of keeping your student loans or refinancing them.
2. What are the benefits?
Determining what the benefits of refinancing are to you is imperative. Because the range of student loans and debt varies so much, be sure to look at your own situation rather than everyone else’s. Some people might find refinancing great while others find it unnecessary. You’ll only know by finding out how your own finances would function.
3. Where do I refinance?
If you’ve set your sights on refinancing, be sure to shop around. Each refinancing company will vary because you’ll be going for a now private loan instead of a public one. Many things will factor into your choice. Some companies require certain minimum amounts of debt and rates may change based on that amount.
4. How can I find the best rates?
Likewise, finding the best rates is obviously a huge part of refinancing. Considering you might be paying off these loans for five to 10 years, the rates you find now will determine how much extra interest you’ll be paying in the long run. Finding the best rates is usually as simple as visiting many company websites and comparing the terms between refinancing loan options.
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5. Will they combine federal and private loans?
The allure of refinancing student loans is being able to group all of your loans into one. Many students took out government financed loans as well as personal loans which can be tricky because of varying payments and amounts. Refinancing usually allows you to bundle all of your loans together into one payment which can be a huge plus.
6. Have I done my research?
Similar to what I said about finding the best rates, do your research on the company in general. It’s likely you’ll be working with them for five to 10 years and if you’re constantly frustrated with them, it’s a recipe for disaster. Make sure the company you have is helpful and provides personal information for you. Don’t fall into the trap of finding good rates at a company you hate dealing with.
7. What are minimum rates?
Even though it may seem counter intuitive, sometimes your debt may be too low. Most times, companies require a minimum of $7,500-10,000 of minimum student loan debt. If you’re under that, it may be easier to just pay off your student loans in the traditional fashion. Again, these rates will vary based on the company you’re looking at, so if your debt ranges around those numbers, be sure to check for minimum rates.
8. What’s my income and credit score?
Like many loans, refinancing companies will often require either a steady (and relatively high) income or a really nice credit score to be approved. If you’re fresh out of college, it isn’t likely that either of those will be your first priority and might be lacking.
However, some companies will accept you based on timely payments in general. Because of this, you’ll probably need a cosigner on your refinancing loan. If finding someone to cosign seems like a large issue, refinancing may become an issue for you.
9. Should I shorten my loan horizon?
Ultimately, as it is with any loan, the shorter the horizon of your loan, the less interest you’ll be paying. This means you’ll be paying less money than you already owe. However, this doesn’t mean that the shortest loan is always the most feasible option. If you are seriously doubting your abilities to make the monthly payments on the shortest loan plan, don’t force yourself to. Make sure you’re settled into something reasonable and safe. Ask yourself if you can seriously take on the responsibilities of the loan.
With all the grey areas of student loans and debt, finding out exactly how and what to do about them seems difficult at best. Because of the varying nature of student loans in amounts, grants, loan types, and other things, no one formula works.
The best thing to do is to always do your research and really understand the benefits and repercussions of any loaning option. Talk to the staff of loaning companies to get a true feel to what you should be doing and how they’ll be able to help you. Once you do decide to refinance or not, you’ll be glad you know why.
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