It’s not often that I can write about something involving loans and say that the pros out weigh the cons, but when it comes to refinancing private student loan debt, the pros pitch a shutout – assuming that you have the credit score, income and payment history to do the refinance without a co-signor. And even if you do need a co-signor in order to secure the loan, such as a close relative, that would be the only negative.
Assuming that you meet the aforementioned prerequisites, the benefits truly stand out in how refinancing a private student loan benefits the debtor/lendee.
Please be aware that we are focusing on “PRIVATE” loans in this post as refinancing federal student loans does have potential consequences to consider which are not applicable here but I will tell you the primary difference quickly, and that is that refinancing of federal student loans takes your loan out of the federal spectrum and eliminates your ability to participate in:
With that clarified… well, at least I feel better for stating it, the world of private student loan refinance can be life changing… and for the better. To show you what this shizo means, we will use a 10-year student loan with 9 years of payments remaining with a balance of $50,000.00 and an 8% interest rate that we are paying $651.00 per month for.
Are you ready??? GO!!!!
Refinancing your loan will save you money over the long haul because there are lower interest payment amounts tacked on to your monthly principal payments. It’s simple math, baby… Even Gen X Daddy Poorbucks can figure this one out.
So check it out – If you are presently 1 year in on a loan with a $50,000.00 balance remaining at an 8% interest rate and you refinance that balance for the same 9-year time period remaining at a 4% rate, you will save $10,680.00 over the life of the loan. That’s just for filling out an easy online application and supplying requested documents.
And yes, just like with personal loans, you can actually check your potential rates without impacting your credit. The lenders do what is called a soft pull based on information you provide. The actual hard credit pull only occurs once you submit the application but the good thing is that you already have a good idea that you will be approved and in what ballpark. The hard credit pull fills in all the missing pieces to properly adjust your rate.
OK, so Daddy Poorbucks and the Loan Camel are rolling now. Let’s say that you are willing to keep your monthly payment amount of $651.00 the same but really just want to pay the debt off as fast as you can. How does that work on the existing loan as it goes from 8% to 4%? It works like so:
You pay the 9-year remaining loan off in 7 years and 5 months – 19 months ahead of schedule. You also save a whopping $12,442.00 in payments over the life of the shorter loan repayment period. I love this game – feed me more!!!
Okay Okay Okay… lower my monthly payments… Pleaaaaase??? A’ight, we’ve got this too. Here’s what you can do with that $50,000.00 outstanding loan that you are currently paying $651.00 per month for over the next 9 years at an 8% interest rate when you refinance at 4%:
If you keep the 9-year term the same, you lower the monthly payment by $99.00 per month to $552.00 per month. Bro, I get it. That’s still a lot of money. You have rent, you have a car payment… your cat had to go on expensive prescription cat food for being obese like my cats. Refinancing a private student loan allows you to push the term out to make your day to day living today more comfortable.
Look at this – If you push the new 4% loan out from 9 years to 15 years, your new payment amount drops from $651.00 to $282.00 per month. That’s a lot of cat food (& no that’s not my cat pictured. My cats asked that I protect their privacy). Even crazier yet, you are still saving money over the loan term at a savings of $3,729.00. Huh??? When I first started looking at this model, the fact that I could see savings over the term, even after adding years of payments, was astounding. That’s the power of lower interest payments. Going from 8% to 4% is HUGE (pronounced with a “Y” for my Brooklyn born & raised college roommate).
Daddy Poorbucks is complex but he likes simplicity. I crave simplicity and automation. The Camel and my cats like it too. That continuous auto-feeder is how they got so fat to begin with. I literally create interactive spreadsheets to manage different functions in my life due to a little ADHD issue – enough about me, I’m a mess but you don’t have to be. Just consolidate your debts into one loan.
I recommend it with multiple credit cards and personal loan debts and I recommend it with multiple student loan debts as well, particularly for Private student loans. Yes you can consolidate federal and private student loans into one loan but remember that if you refinance a federal student loan, you will forfeit any ability to go into a loan forgiveness program or onto an income-driven payment plan. So just make certain that you are good with that.
Either way, the savings and flexibility you gain simply from refinancing your private student loan(s) is(are) incredible in their own right.
That’s right, there are zero fees attached to the student loan refinancing, so unlike some personal loans, you will not be asked to either come out-of-pocket with funds at closing or roll an additional amount of money onto your existing debt to cover loan fees
So this whole thing is free free free… and free is me. And if free is you too then you can start here at Loan Camel by checking out your rates and playing with terms and numbers.
The loan companies generally want a credit score of at least 650 – with 700 and up being better. They want you to have made at least 12 months of payments without being late and will want at least $10,000.00 in outstanding loan balances. Different lenders have different requirements so this is just a good rule of thumb.
If your credit score is not strong, a co-signor will be very helpful in your ability to obtain the loan. Please note that there are lenders who offer a co-signor release option where, for instance, you can get your co-signor released after 24 months of successful on-time payments
I think what we learned is that refinancing private student loans is a free way to create flexibility in your personal financial planning and circumstances. You can save money over the life of the loan as well as lower monthly payments and/or shorten your repayment period.
If you are interested in checking out your potential rates and savings through the refinancing of your student loans then the Loan Camel can help you get over the hump by looking at your Student Loan Refinancing options here.
If you are looking to consolidate only federal student loans, in order to maintain the federal loan benefits on those loans only, please see the Federal Student Aid Office of the U.S Department of Education’s Direct Consolidation Loan Application page.