To refinance or not
One of the most commonly asked questions that I get is “Should I refinance my student loans?”. So, let's take a look at why you should or should not refinance your student loans.
First, you should take into account whether your loans are federal or private. If they are federal, chances are it is not in your best interest to refinance and here is why:
Federal loans have fixed rates which tend to be lower than the national private loan rates.
With federal loans you have the option for income based repayment plans which is not usually offered with private loans.
If you are in a position for Public Service Loan Forgiveness this will become void if you refinance to a private lender.
Whether they are federal or private you may need to avoid refinancing if you do not have a good credit standing. When you refinance privately your credit score will have an effect on your interest rate.
Now, if you were unable to fund your schooling with the loans provided by filling out your FAFSA and you had to take out extra loans to pay for school you may want to look into refinancing if any of these stipulations apply:
You have a variable interest rate.
With variable interest rates they can increase or (less likely) decrease your interest rates which will make your payments less predictable. I have a friend who once worked for a nationally recognized bank and she showed me the fine print on a student loan one time. The bank could fluctuate an interest rate anywhere from 2.6% up to 9%. A fixed interest rate will allow you to predict your payments going forward
Rates are low. If rates are lower than when you applied for your loans it may be worthwhile to see if you can get a lower interest rate
Your credit situation has improved. If your credit has improved you may be eligible for a lower interest rate.
If you have multiple private student loans it may make sense to consolidate them into one loan to have a lower monthly payment.
If you decide to refinance your private loan, do not go with the first bank you find. You should shop around and see which lender has the best terms for you.