When graduates refinance student loans, it is so simple that many people tend to overlook some of the key factors that can make a major impact on overall cost. By ensuring that you've utilized every money-saving opportunity when it comes to college loan refinancing, you can realize huge savings over the course of the 10-20 years you spend repaying your loan. You might be surprised at how many ways there are to easily save money when you refinance student loans.
Your interest rate will be .60% less if you refinance student loans during the grace period
The single most important way to reduce the total amount you repay is to refinance student loans during the post-graduation grace period. Following graduation, every student has the right to a 6 month grace period before they must begin repaying their loans.
During this grace period, the rates to refinance student loans are a full .60% lower than they are once the loan enters into repayment status. When you refinance student loans during the grace period, you will lock in these lower rates for the entire repayment period.
Lender incentives can save big bucks when it's time to refinance student loansNot all companies that provide college loan refinance products are created equally, and where they differ the most is in the
interest rate reduction incentives offered. Aside from choosing to refinance student loans during the grace period, lender incentives can be the most effective way to shave a big chunk of money off of your monthly payment.
Look for those that offer interest rate reductions versus dollar amount reductions then compare the percentage of the reduction.
Reductions for on-time payments and auto debit are the most common types of incentives. While many companies offer a .25% rate reduction for payments made by auto debit, ScholarPoint gives .5%. Many lenders also offer a 1% interest rate for making 36 months of consecutive on-time payments. ScholarPoint offers this 1% rate reduction a full year earlier.
Deferment and Forbearance starts over
Student loans allow a post-grad to put loans on hold for a specific amount of time over the course of the student loan repayment period. During this hold, called a deferment or forbearance, the borrower does not need to make payments on the loan although interest does accrue and is added to the balance of the loan.
The deferment and forbearance benefits aren't lost when you refinance student loans - in fact, the "clock" starts over again so that these hold periods are refreshed and can be used again in full.
You could pay more by incorporating fixed rate loans into your consolidation
The reason it's smart to get started with student loan refinancing now is that most student loans are written with a variable interest rate. This means that every year when the federal government decides on a new interest rate, the payment on your old student loan will change if you haven't refinanced.
However,
not all student loans are written with variable interest rates. Some types of loans like the Federal Perkins Loan and the HPSL loan are fixed interest rates, meaning that the rates always remain the same. If the interest rate offered when you refinance student loans is higher than that of your fixed rate loans, then you could actually pay more by adding your fixed rate loans to the mix when you refinance student loans. ScholarPoint lending specialists can help you find the most cost effective solution in terms of which school loans to incorporate.
No reconsolidation after July 1st, 2006
For years, borrowers have enjoyed the flexibility of refinancing student loans multiple times in order to take advantage of better interest rates or to extend their repayment period. As of July 1st 2006, student loan borrowers no longer have this option except for in a few select circumstances. These new limitations are part of the "Deficit Reduction Act," a set of changes in place to begin repair of the nation's rising deficit.
Since July 1st, 2006 borrowers only have the option of college loan refinancing in cases where some of the loans were left out of the original consolidation or the borrower has new college loans to add in or if the current lender does not offer an income sensitive repayment plan. Because borrowers are more or less locked in with the first lender they choose, it's critical to find a lender with a solid reputation and high
incentive savings options.
In order to refinance, loans cannot be in default
When refinancing a student loan, the payments must first be current and not in default. Loans that are current include those that are in their grace period, in deferment or in forbearance - as long as there are no payments due.
If you are a month or so behind on your student loans because of extenuating financial strain, try contacting your current lender about securing a hardship deferment before you refinance student loans. Oftentimes, if the payment is just a little overdue and your financial situation qualifies, the lender will backdate the forbearance thus bringing your loan current so that you can move forward in your effort to refinance student loans.
A consolidated education loan cannot combine private and federal loans
If you've got loans from a private lender as well as loans that were granted through a government student loan program, you'll need to secure two different loan consolidations.
Most lenders recommend consolidating federal student loans first, and then working on private loan consolidation afterward. Separate consolidations are only necessary for private and federal loans. Any type of federal loan can be combined such as subsidized and unsubsidized Stafford loans.
