Over the past few years, students who opt for loans are finding themselves being buried under the astounding loan debt. In this case, you might be looking forward to refinance federal student loans. While doing so, it must always be kept in mind that you are choosing the best possible rate. When the student loan debt has eventually turned into a crisis, the loan refinancing companies have emerged as a source of relief.
There are a few questions which one must consider before thinking about refinancing.
The amount of money that you are going to save through refinancing federal student loan
While refinancing federal student loan, advantages such as income-driven repayment plans and loan forgiveness are usually given up. Therefore, it becomes important to adjudge if the risks or rewards of refinancing actually make sense. It is true that refinancing would provide a much better interest rate and help you in saving money, but, what it is more important to consider is how much you would actually be able to save. It is thus essential to check the prospective rates before filling in the application. This would not alter your credit score and let you choose the best interest rate and calculate efficiently how much you would actually be able to save.
Considering the probable new terms of repayment from refinancing
In case you are planning to refinance federal student loans, comparing the repayment terms is very crucial. The interest rate, repayment period as well as the monthly payment must be looked into. A side-by-side comparison of the repayment terms would help in understanding if is actually going to benefit you in the long run.
Considering If You Plan To Use Any of the Federal Repayment Options
There have been several repayment plans which are income-driven created by the federal government which aids in lowering monthly payments so as to make the repayment option more convenient for the students. The programs include Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE). However, some of these plans are basically need-based and are therefore available only to certain borrowers who are eligible while others are available to most of the borrowers. There are certain disadvantages of the income-driven plan, but, can be rather beneficial at times in case you lose your job, are experiencing any kind of economic hardships or want the lowest payment possible.
Also, if you are a federal employee or work for a non-profit employer like lawyer, doctor or teachers, you might be eligible for loan forgiveness after making constant payments over a period of time. But, in case you have opted to refinance your federal student loan, you would no longer be eligible for any kind of loan forgiveness or repayment plans through the federal government.
If you are super confident about being able to repay your loans within your repayment time period and are also looking for ways to augment your savings, and also have a healthy income and an excellent credit score, refinancing your student federal loan might be a great option for you.