Key Tips To Refinance Your College Loans

If a borrower is paying an unappealing interest rate on his or her college loans that does not reflect the current market or the borrower’s current financial situation, a perfect solution would be to refinance college loans. In order to refinance college loans, a borrower must follow a set of general guidelines.

Tip #1 – Always be On Time

Refinancing is only available to people who make payments on time. If a borrower has already begun paying back a loan and has defaulted, he or she is not eligible for refinance. 

Tip #2 – Refinance at the Right Time

A grace period is the time that a person has before he or she must start making payments on a loan. With college loans, it is immediately after graduation or following a student’s drop in enrollment to less than half-time and usually lasts six months. The grace period is the perfect time to refinance college loans because it is when the costs associated with refinancing are the lowest. If a borrower renegotiates during this time, he or she will be able to secure low rates for the remaining term of the loan.

Tip #3 – Refinance with the Right Company

The goal of refinancing is to lower interest rates. Programs to lower interest rates are specific to individual companies. Some companies offer incentives, such as rewards for on-time payments, which lead to lower interest rates. Other companies will lower the dollar amount that a person owes per month. A borrower should choose a company that will lower monthly interest rates as opposed to one that will reduce a dollar amount of monthly payments.

Tip #4 – Refinance Depending on the Market

Only refinance to a lower interest rate. If you have a fixed rate loan and want to negotiate to an adjustable rate, be aware that adjustable rate loans are lowest at the beginning of the term of the loan and will increase in subsequent months or years. If the market is presenting a low interest rate, a borrower should lock in a fixed rate. If the market is presenting a high interest rate, an adjustable rate may be a good idea. 

Tip #5 – Be Prepared to Pay

When a borrower refinances a college loan, the borrower extends the term of the loan. This means that instead of paying a lender every month for five or ten years, a borrower can be paying back a lender for the next twenty years of his or her life. Just because the interest rate is lower does not mean that the overall payments are lower.

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