Refinancing Your Student Loans

972 Words4 Pages
Refinancing your student loans means that a private lender is essentially buying your Federal student loans, paying them off, and creating a new loan that it will lend to you on new, original terms. The new terms of your refinanced loan will be based off your credit reports, credit score, and other requirements. The new private loan terms include, among other things, a new interest rate and potentially a new term (the length of time over which you have to repay your loan). For example, you could take your Federal student loans that have a 10-year term and refinance them into one private loan for 20 years. If you have the option to extend the term of your student loan when you refinance, you should consider a number of factors before…show more content…
For example, I’m a trained corporate attorney with student loan debt. If I was unable to extend the term of my loan from 10 years to 25 years, then I probably wouldn’t have been able to switch career paths to a financial planner because I had to take a significant pay cut to make the move. Because I was able to extend the term of my loan and make lower monthly payments, I have much greater job and career flexibility. When your monthly student loan payment is lower, you have more options because your debt doesn’t play as significant of a role in your monthly expenses. Example of extending your student loan term Assume Amy has $45,000 in Federal student loan debt at 6.0% interest rate on a 10-year, standard repayment plan. Amy decides to refinance her loans to private loans to get a lower interest rate. Amy and her lender agree to a new loan with a principal balance of $45,000 at a 4.0% interest rate for a period of 25 years. Using a simple amortization calculator, I came up with the following calculations: Amy’s term: 25 years (2015-2040) Amy’s monthly payments: $237.53 Total repaid: $71,257.97 Amy pays $16,585.60 more in her total amount repaid by extending her term from 10 years to 25 years (see the example below), but her monthly
Open Document