It looks like people with student loans really can’t catch a break these days. After dealing with the increasing college tuitions, they are now facing the effects of a recession caused by a pandemic.
With unemployment and job insecurity threatening their financial stability, what can a college graduate in debt do?
Well, according to financial planner Anna N’Jie-Konte, the solution may be refinancing your student loans.
Low Interest Rates
For the unfamiliar, refinancing a loan means taking out another loan, which would be used to pay off the old one. This is typically done so a person can get a lower interest rate than what they initially signed up for.
That said, people with private student loans can take advantage of current low interest rates to get a better deal. The same advice applies if you have a house or auto loan as the Federal Reserve has made cuts across the board.
Some borrowers who took the refinancing route were able to significantly decrease the interest rate on their loan by half of the original price. Thus, N’Jie-Konte thinks that not thinking about refinancing at all is a disservice to people.
However, it’s also important to remember that there are cases when this solution isn’t the best one to solve your student debt woes.
For example, having a low credit score will prevent you from getting a better interest rate. You can work around this, though, if you can get a co-signer with a better credit score than you to increase your chances of being approved.
If you’ve only got a few years of payments left, then you’ll be better off paying off your loan fully than extending it with a new one. That is unless you can find a lender that can give you a loan that’s the same length as your original one.
Of course, refinancing won’t be beneficial for those who took out federal student loans. Doing so would convert it from a public to private loan and cause you to lose the benefit of the suspended interest rates the government has awarded borrowers. As you may already know, federal student loan payments and interest rates are suspended until September 30, 2020.
Other perks you’ll lose should you refinance your federal student loan are options like being approved for loan forgiveness and income-driven payment plans.