Should You Refinance Your Student Loans?
Hello and welcome to Savings Circle where we help millennial professionals feel confident about their finances. I’m your host Vineet Prasad the founder of Savings Academy.
On today’s episode, with interest rates at record lows I’ve had a few conversations with clients recently about whether it makes sense to refinance their student loans to save more money on interest and I wanted to share some of my findings and learnings with you
So, I just wanted to start with for those unfamiliar what does refinancing your student loans mean um so what it means essentially is uh you if you currently have a loan you’re paying a certain interest rate with certain terms at a certain issuer you can find another lender who will pay off your loan in entirety and give you a new loan so that’s what it is nothing too complicated. The other thing I want to mention as I said up top rates are really low right now uh interest rates are by some measures, he lowest they’ve ever been uh for both mortgages and new interest rates um so now is a good time for refinancing in general
So, what should you refinance your student loans uh I think the biggest consideration here is the interest rate and the second biggest is the type of student loan you have those are both really important so at a high level the type of student loan you have there’s private student loans and there’s federal student loans and if you have a private student loan it can often be a no-brainer to go ahead and refinance if you can find a lower interest rate?
Just as an example I was working with a client who had a nine and a half percent interest rate on a private student loan and we were able to help find them another private uh student lender the student loan lender uh they could offer 4.5 at the refinance ate and this was about a year ago so rate’s actually gone better since then um in that case that’s pretty close to a no-brainer you want to make sure you’re choosing a reputable um refinance company like SoFi is probably the most popular one but there’s a lot of others common bond and it’s really easy to shop around and get quotes um so that’s a pretty no-brainer like I said refinancing your student loans to get a lower interest rate and ultimately pay less each month
However, if you have federal student loans that have they have more protections depending on the type of student loans but at a high level there’s a lot of things if you have federal student loans uh that are more flexible so you can uh restructure for example the payoff plan into different types of plan if you are ever really struggling around finances if you lose your job they’re off their options around deferment for example that are really helpful especially in an economy like what we’re seeing right now um with the federal student loans so I would just make sure you really think twice before refinancing if you are going from federal to private um and the considerations there are if you think there’s a chance you could lose your job and you don’t have a lot of savings maybe you do want to stick with the federal if you think you can pay off the loan really quickly and you’re very confident that you have enough savings and you won’t lose your income stream then maybe it does make sense to refinance from federal to private just make sure you understand and look into all of the protections you’ll be losing uh by moving from federal to private so those are my tips for uh thinking about whether to refinance your student loans it’s an important decision it’s one that can save you a lot of money so it’s at least worth looking into and if you feel like it seems complicated the process is actually fairly easy so I would definitely look into it.
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