The reality is that most students have some kind of debt or loan when graduating college. It can be scary not knowing how to handle the loan payments, and—like me—you may have no idea where to even start. But there are ways to avoid the feeling of debt looming over you, and one of those ways is to refinance your loans. It may not be the right choice for everyone, but here are a few ways to see if it’s right for you and, if it is, how to get started.
Keep in mind that if you’re looking into any loan forgiveness or repayment plans, refinancing may not be the right choice. These types of programs generally don’t allow you to refinance, so you could risk not being able to take advantage of them.
The point of refinancing is to change your interest rate and the amount you have to pay back each month, so you can hopefully save yourself money and pay on time. You’re able to check the prospective rate before you actually apply, so you’ll be able see if it’s worth doing.
Like most students, you may have a federal loan. They come from the government, and typically offer income-based repayment plans. On these plans, the amount you pay each month is based on how much money you’re currently making, allowing it to be more affordable. The downside to this is that your interest rate goes up, since you’re taking longer to pay the money back, so keep that in mind.
Once your loan is refinanced, it takes on average 5 to 20 years to pay it off, compared to the 10 to 30 years it can take if you don’t. Interest rates stay the same while you’re paying back a federal loan, but the interest rates for private loans can vary. You could save money with a variable interest rate, but it’s safer to stay with a fixed one, especially after refinancing.
If you plan on teaching or taking a government job, you shouldn’t refinance your federal loans, as you’d lose out on a forgiveness option. Private loans are separate, however, and you should talk to your bank to go over all of your options for paying them back. Private loans often start out with a high interest rate, so changing that right away is a smart choice.
Navigating life after college is stressful enough, but having money to pay back as well can make it seem overwhelming. Refinancing your loan may help ease that stress, so talk to your bank or the Financial Aid office to get more information and see if it’s right for you.
This article was written by Catherine Rafuse, ’19, a psychology major.