Student Loans Insight

Refinancing private student loans can offer many financial benefits but knowing how to do it properly will avoid hassles and protect your lower interest loans.

Students look to many types of loans when seeking money to pay for their college educations. In general, they look in two places – to the federal government and private lenders.

Federal loans come from the U.S. Department of Education, which runs student aid programs.

Private loans come from many different lending institutions. These are unsecured loans and usually carry a higher interest rate than the federal loans.

Many students who borrow to pay for higher education end up having both federal loans and private loans. Federal loans most often don’t contribute enough money to pay the cost of attending a university.

The reason private loans cannot be mixed with money borrowed through federal education programs is that the low interest rates only are available at the federal level. If you do consolidate them, you will lose the interest benefits of the federal loans.

If you wish, you may consolidate your federal student loans, but do so before you consolidate the private loans. Federal student loans have an advantage over private student loans. They carry lower interest rates, tax-deductible interest and you are permitted to extend the repayment term up to 30 years through a consolidation.

Consolidating the private school loans often is a smart choice because the original loans often carry higher interest rates, tight repayment terms and lack the protection of the federal loans.

Most education loans in the private market aren’t competitive, meaning you likely won’t find much benefit in terms of price by refinancing.

There are other benefits though that make a consolidation worthwhile, especially if you’re looking for ways to cut the monthly cost of the loan.

Lumping all of your education loans into one helps make repayment more simple by creating a single payment each month rather than having to pay several lenders. And, refinancing also will create a new repayment term, which often will decrease your monthly payment total.

Of course, by extending the repayment term than originally set, you will pay more money in interest.

Another potential benefit of refinancing occurs if your credit score has improved in recent years. Interest rates on private student loans are determined based on your credit score. An improved credit score might equate to a lower interest rate during your refinancing.

This entry was posted on Thursday, October 16th, 2008 at 4:22 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.