Student loans have become an ingrained part of American life. Despite this being the case, not all is well with borrowers. It’s more than just the amount of borrowers and total student loan debt out there; even more so, the fact that people are struggling to keep up with their loan repayment is the problem.
As of May 2020, nine percent of those with loans who went to a public university were behind on their repayment. But this number shoots up to 24 percent for those who attended private, for-profit schools. Making loan repayment more affordable through refinancing can help alleviate some of these issues. Here are three reasons to refinance your student loans.
You Can Drastically Improve Your Financial Health
The first reason you should think about refinancing your student loans is the fact that doing so can drastically improve your financial health. You might be a bit skeptical of this, since there’s typically no such thing as a free lunch. With student loan refinancing, however, you’re getting about as close as possible to that unreachable ideal.
To understand how this can all benefit you, there’s an important question that first needs an answer: What is refinancing? When you break it down to the most basic level, refinancing is just borrowing money through a new loan to pay back your current loan.
You might be wondering if this is actually a good idea or not—as playing around with debt too much can be a dangerous game. Refinancing, however, is almost universally considered a smart financial move. This is because getting a new loan means you can get a better deal. For instance, when you refinance student loans you can:
- Lower your interest rate – This will end up saving you tons of money over the course of your loan. Even just a single percentage point can make a big difference when a loan lasts a decade or more.
- Change the loan term – If you want to get out of debt sooner, you can switch to a loan that has a shorter repayment term. And conversely, if you think you need to lower your monthly payment, it’s possible to extend your term through a student loan refinance.
- Add or remove co-signers – If you need a co-signer to qualify for a student loan refinance—no problem. This is a perfectly acceptable practice. Furthermore, you can refinance to remove a co-signer from your student loans.
There’s no doubting that getting to a better place financially is a good reason to refinance your student loans. But what are the other two motivators?
It’s Easy to Find the Best Deal Out There
Anyone who has had to search around on their own to find the best rates and conditions for a loan knows it can be a huge headache. At the same time, failing to do this can cost your pocketbook dearly over time.
Fortunately, there’s a great way for borrowers to find the best possible deal for a student loan refinance. Juno is a company that instead of lending money themselves, selects the best student loan deals from a large pool of lenders. Their members then are only offered these optimal deals; so you can be sure you’re getting the best loan out there. If you’re somehow able to find a better deal, Juno will match it.
It’s Worth Taking Advantage of Low Interest Rates
No matter what kind of student loan refinance is in your focus, the federal funds rate will play a factor in determining the rate you’re able to secure on your loan. Interest rates are determined by market conditions, but short-term rates are controlled by the Federal Reserve.
When rates are low, it’s often wise to take advantage of this. With debt, locking in a low rate means you’ll keep paying that same amount even if rates rise later with the changing economy. It’s essential, however, that you understand the difference between fixed and variable interest rates if you plan to refinance your student loans.
While variable rates can seem more appealing in the moment because they tend to be lower than the fixed option, they can rise or fall over time. Therefore, you’ll want to go with a fixed-rate refinance if you want to fully take advantage of the current low interest rate environment.
There are plenty of reasons why you should think about refinancing your student loans. Knowing the top motivations for this can help you determine if it’s the correct decision for you.