Loan Articles


Faced by the prospect of holding low paying entry level positions, college graduates have not yet had the chance to see their degrees translate into good earnings. For this reason, post-graduation is the worst time for them to repay student loans. Refinancing of education loans might turn the perfect solution for many graduates with high monthly payments.

When you choose to refinance your student loan, you are bound to get in deeper over your head. But if you must, keep in mind that most graduates tend to overlook many important aspects, which can affect the overall cost. You may save a lot of money in the next 20 years, during which you are paying your loan back. For one, the interest rate is reduced if you refinance the loan during the grace period. The amount by which it is reduced depends on the loan amount itself and its other terms and conditions. Most loan providers offer a grace period after you graduate; so, you should opt to refinance during this period, which usually lasts six months. You can take advantage of the lower rates throughout the repayment term.

Most providers offer some kind of incentive to pay the loan back. Two examples of this are interest rate reductions and cash reductions. If you have a choice, go for the first one. A convenient repayment plan would involve an initial instant rate reduction and a deferral of payment for a period of 12 months. The terms are guaranteed even if your loan is transferred to someone else. The initial interest reduction helps you pay off the principal quicker. Ultimately, the loan is repaid sooner with such kind of arrangement.

Most providers allow graduates to postpone the repayment for a specified amount of time. This period is called forbearance or deferment. If you decide to refinance your loan, this period is not lost the cycle starts all over again. Most loans incorporate a variable interest rate. This makes refinancing a good idea. The payments on your loan change every time the government changes the interest rate. This, of course, applies only to federal loans. Some loans incorporate fixed rates, meaning that they never change. If you refinance such a loan, you will end up paying more in the long run.

You cannot default on your loan if you want to refinance. In addition to that, your payment history should be spotless. If you are behind on your payments, contact your lender, explain the circumstances, and ask them for a hardship deferment. If the payment is not long overdue, your lender may be willing to backdate the deferment so that you can move forward to refinancing.

Another option to consider is loan consolidation. This means that you combine your loans into a single one, which helps you reduce the amount of your debt (in half in some cases). You must be aware that you cannot consolidate private and federal loans into one consolidation loan. You need two different consolidations if this is the case. Experts recommend consolidating government loans before private ones.