A single, lower monthly payment is one of the most appealing aspects of a student loan refinance. It simplifies bill payment and can free up cash for other financial goals. Surprisingly, many student loan borrowers are unaware of the unique advantages private student loan refinancing offers.
Private Student Loan Refinancing vs. Federal Student Loan Consolidation
Private student loan refinancing is not the same as federal student loan consolidation. Private student loan refinancing has the potential to pay off multiple federal and private student loans with a single loan. This loan can have a lower interest rate, revised repayment terms, or both.
Federal student loan consolidation also combines multiple student loans into a single loan, but you cannot include private student loans in this type of consolidation loan. The new loan’s interest rate will be decided based on the average interest rate of your consolidated federal loans.
These distinctions are important to understand as you weigh the following benefits of private student loan consolidation.
Private Student Loan Refinancing Benefits
- Save on your interest charges. If you qualify, it’s possible to use a single lower-interest rate loan to pay off multiple high-interest rate loans. The extent of savings will depend on borrower eligibility requirements and repayment terms.
- Have a single monthly payment. You will no longer need to keep track of multiple due dates. Additionally, checking your loan balance will be simplified because it will all be accessible in one online account, versus multiple.
- Possibility for more time to pay off debt. Depending on how much you owe, a loan refinance could give you more time to pay off your debt. As a result, your repayment terms could be extended up to 20 years or more.
- Potential for lower payments and extended repayment terms. Borrowers who elect to use private student loan refinancing are actually refinancing their loans and typically end up with a lower monthly payment, extended repayment terms, or both. Extended repayment terms usually result in lower payments, even if the new loan is at a higher interest rate than the original loans.
- Helps secure a fixed-rate loan with predictable payments. Variable interest rate loans, which are common for older federal student loans, could mean higher payments than expected during the repayment term. Switching to a fixed-rate loan could give you the peace of mind that comes with stable minimum monthly payments.
- Aids you in achieving your financial goals. LendKey partners with lenders who can refinance both federal and private student loans into one new loan with no origination fees and repayment terms as short as five years. Check your rate today and discover how much you can save!
Are there any drawbacks to student loan refinancing?
While each situation is unique, there is at least one thing every borrower who holds both federal and private student loans should keep in mind. It’s important to know that refinancing federal student loans with a private lender may cause you to lose eligibility for specific federal benefits such as Public Student Loan Forgiveness. Even under the federal loan consolidation program, you could lose some of your loan benefits, such as interest rate discounts, by consolidating.