Student Loan Refinancing
Giving emphasis to education, students strive hard to study in order to have a better future. When it is time to enter college, the question on where to get the amount to pay for increasing tuition fees and other expenses comes up. Some students look for jobs while some drop out from their studies. The resourceful ones apply for student loans and use the loaned money to pay for their expenses while in school.
Why apply for a student loan? Because interest on student loans are lower than any other form of loans, there are no collateral needed and payments are due only after the student is out of school. The disadvantage of using student loans is that the student accumulates so much debt by the time he graduates from college and finds it hard to pay.
Advantages of Student Loan Refinancing
The idea of student loan refinancing emerged. The main objective of student loan refinancing is to reduce the monthly payments by extending the loan payment duration, or by having payments with a lower interest rate. Paying a loan with lower interest rates can save the student some money. Extending the loan payment duration is good only if the monthly payment is high because an extension to the payment period means additional interest rates to pay.
Another objective of student loan refinancing is to consolidate loans from different companies into one single account at another company. The loans are then easier to manage with one fixed monthly payment and interest rate. Companies offer much lower interest rates to a larger, consolidated loan than to several smaller loans from different companies. Lower interest rate means additional savings on the part of the student.
Private and Federal Student Loan
Before applying for a student loan refinancing, the student must be aware of the type of loan he wants to apply for. Is it a federal student loan or private student loan? What is the difference between a private student loan and federal student loan?
Federal student loans are funded by the Federal government and sometimes with the help of the school. Interest rates for federal student loans are lower and with flexible repayment schedule. Payments for federal student loans can be delayed if the student chooses to continue his studies. Interests on federal student loan are tax deductible. Private student loans do not offer the same benefits.
When a student’s needs exceed more than what a federal student loan can offer, the option to avail of a private student loan is available. Private student loans are offered by private companies. Other students and parents prefer this type of loan because there are no government documents to fill-up and the loan amount can be tailored to the student’s needs.
If the student has applied for both, a separate student loan refinancing for each is recommended. A federal student loan can only be refinanced if the student is no longer in school and is actively paying the loan. Some companies also require a minimum loan amount of $10,000 in order to approve student loan refinancing.
Student Loan Refinancing Companies
Although generally, student loan refinancing lowers down the interests and monthly payments, one must look further into the company that offers this opportunity. The Internet offers a wide variety of choices, but one must choose a reputable refinancing company. License and other proofs of the company’s legitimacy must be thoroughly researched and investigated.
Check also for other incentives that the companies may offer. Some refinancing companies offer discount incentives for automatic payments. Discount for on-time payments after a specified period of time can also be enjoyed from other companies. Reduction of the principal amount and cash incentives are also available. Before choosing a company, a computation on how much can be saved for each incentive is imperative so as to know which one offers the lowest refinancing scheme in the long run.
Aside from the incentives, inquire about the company’s policy on deferment and forbearance. The refinancing company might be offering the best incentive but might impost high penalties for late payments. The high penalty might in effect increase the monthly payment instead of reducing it. The option to defer or forebear payments lessens the penalties or charges for late or non-payments which might be caused by unemployment, continuing studies or any other financial difficulty that may happen.