It’s no secret that U.S. colleges are getting more expensive by the year.At the same time, the need for higher education is more prevalent now than ever before. With almost 59% of high school graduates heading off to college, it’s clear that pursuing a degree is a priority for most 18–20-year-old Americans.
Interestingly, the rising demand for higher education has led to an exponential increase in its cost.The skyrocketing cost of attending college—that’s growing an astounding 8 times faster than wages—has driven students to loans in droves. The competitive job market and the opportunity to earn a heftier paycheck have been the driving force behind this move. After all, this year’s events have proven that a college degree may even safeguard you from labor market turmoil and mass unemployment.
However, opting for temporary relief through student loans can result in crippling debt once you graduate. While you spend four years working hard at college to earn your degree, another incredibly challenging task lies ahead of you: repaying student loans.
According to Pew Research Center, 22% of college graduates with student loans claim to be financially struggling, while only 11% of their debt-free counterparts claim the same. Fortunately, there are ways you can repay your loans without the crushing pressure of insurmountable debt looming over your head.
The solution? Student loan refinancing.
What is student loan refinancing?
Simply put, refinancing your student loan means working with a private lender to replace your existing loan with a new loan. The lender pays off your current loan and works with you to draw up new loan terms for your future loan.
Refinancing is a viable option for people with federal or private loans, making debt relief a quicker, smoother process for many. However, it isn’t available to everyone. To enjoy the benefits of student loan refinancing, you need to obtain approval from the lender. This depends on various factors, including:
- A good credit score
- A stable, well-paying job
- A low debt-to-income ratio
- A cosigner who’ll increase your chances of approval
What are its benefits?
Every second, $2,858 are accrued in student debt. With the numbers growing at astonishing rates, it’s no surprise that many people opt for refinancing to ease debt repayment. Some of the benefits it offers are:
You can pay off loans faster
Most loan repayment plans span a decade or two—the standard repayment time is 10 years, according Consumer Financial Protection Bureau. However, most people may end up paying off their student debt well into their 40s.
It’s no surprise that many people aren’t able to follow through with their repayment plans as they’d initially intended. At some point in your life, you need to focus on other goals and invest in your future as well, but this can take away focus from your ever-present debt.
Refinancing allows you to set shorter loan terms that help you get rid of your debt faster. Instead of leaving your loans lingering for years, paying off what you owe with the help of lower interest and short repayment spans is an effective solution.
You get to pick the one you like best
Since refinancing is only offered by private lenders, you get to enjoy the flexibility that comes with working in a competitive lending market. There are many private lenders for you to choose from, with each one offering a myriad of advantages that may be attractive to you.
Unlike federal loans, private borrowing gives you the unique advantage of choosing loan terms that suit you best. This is especially important when refinancing your loan in the hope of a better, more suitable one. Don’t settle for the first lender, explore your options and find one that offers the lowest rates and favorable loan terms.
Increase your savings
Student loan repayment and savings don’t seem like words that should go together, but refinancing makes it possible. By enabling you to get more favorable loan terms, refinancing allows greater savings in the long-run.
How is that possible? Let’s understand this through an example. For instance, you owe $100,000 in student debt. Your initial loan term is for 10 years and the rate of interest is 8%—this means you’ll have to pay a total of $145,593.
Now let’s assume that the same loan is refinanced at 4% interest with a 5-year loan term. While your monthly payments would be higher, you’d end up paying a total of $110,499. That’s almost $35,000 in savings that stay in your pocket!
Find out what you can be saving with a student loan refinance calculator.
Manage several loans easily
Faced with unattainable college costs, many people opt for several loans to meet their needs. These multiple loans can become a burden to pay off since you may be working with several lenders and struggling to juggle different amounts and due dates.
Refinancing all your student debt into one loan saves you the hassle of managing so many different ones. Reduce the likelihood of missing your payments and incurring late fees by streamlining all your loans into one.
You can release your cosigner from the loan
Understandably, most students don’t have great—or any—credit score against which to secure their loans. In many cases, cosigners are called on to apply for the loan with you and agree to pay it off if you’re unable to. However, this is a big responsibility that many family members or parents may not want to carry around forever.
Lenders don’t always offer a cosigner release or they may believe you don’t qualify for it. In this case, you’re stuck with your cosigner in a relationship neither of you wants to continue. Refinancing offers you the chance to cut ties with your cosigner by finding a new lender.
Since it’s a new loan—and you may be on more stable financial footing—you might not need a cosigner to get approved!
Make The Right Choice
Just because you took on student loans with unfavorable terms four years ago doesn’t mean you should be stuck with them forever. Refinancing gives you the chance to break free from loans that are bogging you down or ones where you’re on the verge of defaulting.
About Education Loan Finance
Education Loan Finance is one of the leading providers of student loans, parent loans, and refinancing plans in the U.S. By providing low interest rates and favorable payment plans, ELFI has become a reliable and established lending service of choice for many.