Student Loan Refinance Tips

The vast majority federal student loans are eligible for student loan consolidation, which is just a fancy word for student loan refinancing.  The student loan refinance rules, like those of most government-mandated programs, can be a bit complex.  Federal education loans eligible for refinance include FFEL, Stafford, SLS, Perkins loans, Federal Nursing Loans, and Health Education Assistance Loans (check out the official Federal Student Aid website for more details).

Student Loan Refinance Tips

• Refinance During The Grace Period – In an effort to make attending college more affordable, congress has decreed that borrowers of Stafford loans can lower their student loan refinance rate by up to half a percent by refinancing during the 6-month grace period.
• You Can Only Refinance Once – While refinancing into a fixed-rate loan eliminates the risk of your payment ballooning with interest rates down the line, you are unfortunately allowed to refinance your federal student loans once and only once.  If you expect future interest rates to head lower and can afford the payment in the meantime, it might make sense to defer refinancing until rates are more favorable.  That said, nobody can accurately predict changes in interest rates.  My advice is to refinance as soon as you’re able and rates are affordable.  Locking in a good rate is preferable to holding out for a great rate and subsequently getting screwed by the credit markets.
• Shore Up Your Credit – Refinancing student loans is much like refinancing any other loan:  the better your credit, the lower your student loan refinance interest rate.
• Consider Paying Off High-Interest Loans Before Consolidating – Since federal consolidated student loan rates are based on the weighted of your loans at the time you consolidate, it could make sense to quickly pay off your highest-rate loan as quickly as possible before refinancing.  This is especially true if you have  a few very low-rate student loans and one very high-rate loan.  If that describes your situation, you could significantly decrease the total amount of interest you pay over the life of your student loans by paying off the highest-rate loan first.  Do the math to see if this makes sense for you.
• You CANNOT Discharge Student Loans In Bankruptcy – If you for some reason end up declaring bankruptcy somewhere down the road, you won’t be able to have your student loans discharged.  That is, you’ll have to pay them back no matter what.  Make sure the degree you pursue is worth the risk.
• Go For A Longer Repayment Period – Since these student loans are federally-guaranteed, the you won’t get a significantly lower interest rate going with the 10-year repayment period over the 30 year period.  It’s true a longer repayment period will cost you more and carry a slightly higher interest rate over the life of the loan, but it also gives you the most flexibility.  Besides, you can always pay off the loan in full early if you find yourself flush with cash.
• There Is No Going Back – Once you consolidate your student loans, there’s no going back.  Be sure to run the numbers thoroughly before committing to consolidation.

Keeping the above tips in mind will help you get the most savings out of refinancing your student loans.  For more general facts on repaying your student loans, check out the Federal Student Aid website.