From The Harvard University Employees Credit Union

What Is Student Loan Refinancing? 6 Fundamentals Everyone Should Know

If student loans are making you feel overwhelmed, you’re not alone. An estimated 44 million graduates across America owe a combined $1.3 trillion in student loans, and the average 2016 graduate will leave school with $37,172 in debt. Luckily, there are ways to take control of your financial health and your student loans – and one of the best ways to do that is through student loan refinancing.

To put it simply, student loan refinancing means taking out a new loan to pay off one or more of the loans you already have. Why take out yet another loan? There are plenty of benefits, but to put it bluntly, refinancing your student loan can save you money.

Interested in learning more? Here are six fundamentals everyone should know about student loan refinancing.

  1. Refinancing Can Lower Your Monthly Payments…

Refinancing offers you the opportunity to change the terms of your initial loans. If you originally chose to pay off a significant amount of money every month, you can extend the length of the loan in order to reduce those monthly payments. This can be a good option for recent graduates who have yet to enter the job market, as well as anyone finding it difficult to keep up with the monthly payments set out by the terms of their original loan.

…And Reduce Your Interest Rate

Many people refinance their student loans once they become eligible for a better interest rate. As you age and build credit through paying your bills and lengthening your credit card account history, you will in turn qualify for better interest rates from private lenders. Sometimes, working with a different lender or taking out a loan at a different time will naturally lead to a better interest rate, depending on rates set by the U.S. government. By lowering your student loan interest, you will owe less in monthly payments and over the long term.

  1. Your Refinancing Choices Are Flexible

When refinancing, you have two basic interest rate choices – fixed and variable. With a fixed rate loan, you will pay the same interest rate across the entire life of the loan. A variable rate loan, on the other hand, will be adjusted each month or after a certain amount of time, depending on the U.S. Prime Rate. Which loan rate is right for you? It all depends on your credit, and how much risk you’re willing to take. A variable rate loan can sometimes mean higher payments for those with less than excellent credit, but at the same time, it has the potential to offer savings if the U.S. Prime Rate goes down. A trustworthy lender can help you evaluate your choices and decide which is right for you.

  1. Consolidation and Refinancing Aren’t the Same

Federal loan consolidation is offered by the federal government, whereas loan refinancing is only available from private lenders like credit unions and banks. Loan consolidation combines all of your federal loans into one monthly payment, saving you the time and hassle of making multiple payments. Consolidation can also lower your monthly payments by extending the life of your new, consolidated loan – but unlike refinancing, it can’t give you a lower interest rate.

  1. Refinancing Is a Good Way to Release Your Co-signer

If you find yourself in a relatively stable financial position post-graduation, it could be time to release your student loan co-signer. Often, students turn to a parent or another relative with good credit to help them co-sign a loan and get a good interest rate. Refinancing your student loans is an easy way to release a co-signer and take full responsibility for your debt. Refinancing to release a co-signer is especially important if the co-signer is considering their own business or education venture and needs access to new lines of credit.  

  1. A Better Credit Score Means Better Refinancing Options

As you’re learning more about student loan refinancing, also take the time to learn more about your credit health and score. Good credit can help you secure a mortgage or rent an apartment – and it will also help you get a better interest rate when refinancing a loan. How to improve your credit score? Pay off all your bills on time, and avoid building up credit card balances. It’s also useful to check your score regularly so that you understand the state of your credit health and remain focused on maintaining or improving it.

  1. Choose a Lender You Trust

Student loan refinancing must be done through a private lender, such as a credit union or a bank. When choosing your lender, it’s good practice to do your research and make sure you pick a trustworthy organization with a solid reputation – and no hidden fees. The right lender will offer flexible terms, transparent service, and most importantly, a better interest rate to save you money.

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For more information on student loan refinancing and how it can lower your monthly payments, consolidate multiple loans into a single payment and reduce the interest you owe, speak with a trusted lending officer from the Harvard University Employees Credit Union, or visit HUECU online.

Your savings are federally insured to at least $250,000 and are backed by the full faith and credit of the United States Government. National Credit Union Administration, a U.S. Government Agency.

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