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Should You Refinance Your Private Student Loans?

Student loan debt continues to impact the American people. Each year, millions of young Americans enroll in college. To pay for tuition and lodging, many require public and private student loans to pursue an education. 

The current amount of student loan debt in the United States is nearing $1.6 trillion. This figure will soon hit $2 trillion with a growing population and rising tuition costs. In fact, the student loan industry is now bigger than both the auto and credit card industries.

Some Americans are struggling to pay back their student loans. The good news is that you can reduce your monthly expenses by applying for a refinance or consolidation solution. Read on to explore your options for refinancing and loan consolidation.

Student Loan Statistics

Student loans are impacting the monthly budgets of Americans. The proof is in the statistics.

In the first quarter of 2019, over five million federal borrowers defaulted on their student loans. Another six million borrowers are officially seeking resolution from their lenders. There are 2.7 million borrowers in forbearance and another 3.4 million in deferment.

Nearly one-quarter of borrowers are behind on their payments. The impact of student loan debt does not discriminate based on age or gender. Borrowers aged 35-49 hold the most student loan debt with roughly $550 billion in obligations.

The vast majority of these borrowers have federal student loans. The statistics for private student loans, on the other hand, are fairly encouraging.

Just 2.22 percent of private student loans are in forbearance. In addition, only 1.46 percent of these loans are 90+ days past due.

Private Loan Description

Before diving into the different loan options, it is important to understand the details of private student loans. Some students do not receive enough federal funding to pay for their college expenses. In these cases, individuals turn to private lenders to make ends meet.

Private loans can be executed from several different sources including banks or other financial organizations. Like a personal or auto loan, the lender will review your application and reach an approval decision.

Lenders consider factors such as income and credit score. If the applicant is lacking in these categories, a co-signer can be added to improve application odds. The presence of a co-signer can help the applicant secure a lower interest rate.

Loan Types

A private lender can bundle your debt regardless of loan type. This is one of the advantages of selecting a private lender.

You can bundle together federal, state, and private loans under a refinancing or consolidation package. This is a benefit that the government cannot offer.

After you are approved for a consolidated loan, your new lender pays your existing obligations. The lender will cut a check to pay off each loan. Then, they will issue a new loan for the application amount.

Advantages to Refinancing

Student loans can be prohibitive to your monthly budget. The reason that borrowers look into refinancing is to lower their monthly payment. There are two primary ways to achieve a reduced bill.

The first way is by lowering your financing charges. This is done by securing a lower interest rate.

Interest rates are one area where the private industry can beat a state or federal government. In many cases, the private industry can offer competitive rates to entice you to refinance.

The other way to reduce your monthly payment is by extending the loan term. Some borrowers simply cannot fit their student loan payments into a monthly budget.

Extending the loan term spreads the payment out over a longer time period. This can yield a significant reduction in the monthly payment.

Refinancing bundles several different student loans under one umbrella solution. The refinanced loan has a singular interest rate and loan term. It is also easier to manage a refinanced loan, as you no longer have to juggle multiple due dates.

Now you can pay your student loan obligation once per month. There are also auto-debit settings to make account management even easier.

Under an auto-debit plan, the payment is withdrawn from your account on a day of your choosing. Some lenders offer an interest rate discount for applicants that sign up for auto-debit.

Loan Consolidation

Loan consolidation is similar to refinancing in many ways. The primary difference between the two is how the interest rate is calculated.

A refinance package starts fresh and assigns an interest rate based on the application details. On the other hand, a consolidation package takes a weighted average of your existing student loans.

The primary goals of loan consolidation are the same as a refinancing package. The intent is to save you money by reducing interest costs or extending the loan term. It is also easier to manage the loan with just one due date per month.

Interest Rate Types

One thing to consider under a refinancing or consolidation solution is what type of interest rate you want. There are two types of interest rates to consider: fixed and variable.

A fixed-rate plan is based on market conditions at the time of loan origination. The interest rate remains the same throughout the loan term regardless of market fluctuations.

A variable rate loan is adjusted routinely over the term. Instead of impacting the rate at origination, market conditions continue to affect the rate.

This means that you can secure a lower interest rate if market conditions improve. However, variable rates pass the risk on to the borrower. If market conditions worsen, you can pay more in interest over the loan’s life.

Reaching a decision on rate type depends on how much risk you are willing to accept. Some people prefer consistency and want the payment to remain the same. Others accept risk for the reward of reduced interest expenses.

Applying for a Private Student Loan

A personal loan may be the solution to your student debt issues. You can reduce your monthly payment by securing a low-interest rate or extending your term.

It will also make your life easier by managing just one account instead of many. If you are interested in applying for a private student loan, contact us today for professional assistance.

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