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Reducing loan payments through refinancing
The main goal of refinancing is usually to reduce your monthly student loan payments. There are several ways to do this, and most banks have student loan consolidation programs.
When refinancing your student loans there are several things to consider. First, you have both federal student loans and private loans, you will want to refinance them separately. Because of the way federal loans are structured, you can get a much lower interest rate on them than you can on private loans. Private student loans are basically personal loans made with the assumption that your income will increase with more education. If you mix the two together when you refinance, you will end up paying a higher interest rate on the combined principal than you would if you financed the two loans separately.
Second, student loan rates vary by lender and by your credit history. So, before your refinance make sure your credit history is in good shape. Review a credit report, and take action to fix problems. Then, compare rates from different lenders. Rates for refinancing federal student loans change once a year (usually around July 1). Currently the rates are very low, but it’s difficult to know how they will change as the economy changes.
What you need to qualify for low-interest rate refinancing for your student loans
Each lender has different qualification requirements for refinancing. Most lenders require that none of your loans be in “in-school” status – that is, you cannot be currently paying for education using an active student loan. Some lenders have a minimum balance requirement, and that balance is arbitrary. To find out what each lender requires, visit the lendors listed above.
Two ways to reduce your student loan payments
When you refinance your student loans, you can reduce your monthly payments either by getting a lower interest rate, or by extending the duration of your loan. Of the two methods, getting a lower interest rate is preferable since you are also reducing your long-term student loan debt.
However, if your monthly payments are too high, extending the duration of your loan can be a big help. Effectively, you extend the period over which you repay your loans, so each payment is smaller. Longer terms, though, usually mean higher interest rates, and more interest payments. In the long run you end up paying more, but the payments are more managable.
Resources to Refinance Student Loans
Effects of Student Debt
Consolidating Federal Student Loans
Consolidation recommendations of the University of Michigan Law School
School loan consolidation – Eligibility information for refinancing (or not refinancing) your student loans.