In this age of high student loan debt and a job market still on the mend, student loan refinancing is something you should understand fully. It’s entirely possible your situation after graduation will not be the situation you envisioned when you set the initial terms with your lender. If you’re thinking about refinancing, here are few things to consider before you take the leap.
The first thing to consider when thinking about refinancing is if you’re even eligible to do so. If you’ve just graduated, odds are you haven’t had time to build up good credit or a solid work history. These are the two most important factors lenders look at when deciding if they’ll allow you to refinance. Most won’t okay it if your credit score is much below 700. You might be able to get a co-signer but remember the fact that if you default with a co-singer, you’ll be drastically affecting their finances and credit along with your own. Be very careful that you’ll be able to make the new payments if you choose to involve someone else in this process.
If you have several loans, it can be beneficial simply to consolidate all of your loans into one. This can sometimes lower your interest rate or allow you to change from a variable rate loan to a fixed rate loan. If you can lock in a low-interest rate, switching from variable to fixed rate will ensure that your payments remain stable in the future. But it’s important to make sure that interests are on the low side before opting for a fixed rate loan. Otherwise, you could be locking yourself into a high monthly payment when you could’ve waited and paid less in the long run.
If you have a federal loan, there are advantages that will be closed to you if you refinance. Federal loans offer the unique benefit of income-based payment plans, but you will be ineligible for one of those should you decide to refinance. You also might qualify for loan forgiveness at a later date, but, again, you will not be able to take advantage of that option after a refinance. Finally, federal loans also offer loan forbearance in certain situations. This is another feature that you will be locked out of should you refinance.
If you went to Boston University with the plan to later choose an online MBA with no GMAT from UAB, you might want to refinance your initial student loan to get some lower payment or interest rates. If your initial terms were based on the fact that you expected to make a certain amount of money right out of the gate, consider refinancing to take into account your new situation. If you’re going to wait to fully join the workforce until after you’re qualified to make more money, refinancing could allow you to get the education you need without being burdened with big monthly payments.