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Student Loan Refinancing: What Are the Benefits?

Key Takeaways

  • Simplify your monthly budget by consolidating your student loans into one simple payment.
  • Refinancing could help you free up extra cash, reduce monthly payments, and pay off student debt faster.
  • Choose between a variable or fixed interest rate.

Whether you want to refinance student loans individually or consolidate your loans together, student loan refinancing may help make your monthly payments more manageable, and possibly reduce your interest rate or overall debt. With some loans, you have the option to consolidate federal and private student loans together, which could allow you to make one easy payment a month.

Reducing student loan payments by refinancing

Refinancing allows you to adjust the terms of your individual student loans. This could result in a lower interest rate or extended repayment period, thereby reducing your student loan payments. This may make your monthly payments more manageable, and allow you to allocate any freed-up funds directly to the principal so you could pay down the loan faster — which could improve your credit score.

Let's say you had one loan you were closer to paying off. One of the benefits of refinancing is you could adjust this loan individually while making regular payments on your other loans or consolidating them separately. If you're focused on lowering your debt-to-income ratio — especially in order to make a large purchase like a home or a car — the credit benefits of refinancing may help you meet your goals.

There are important factors to consider when refinancing your federal student loans specifically, as those loans offer a unique set of repayment benefits, which would be negated by refinancing to a private loan. This is where you could benefit from refinancing loans individually; you could refinance outstanding private student loans while keeping your federal loans separate to take advantage of income-based repayment or student loan forgiveness programs. Of course, there are several factors to consider before refinancing student loans.

Simplifying student loan obligations with consolidation

Federal student loan consolidation simply combines your outstanding loans into one loan. The interest rate is based on the weighted average of the rates on the loans you consolidate. While this simplifies repayment, it doesn't necessarily help when you're interested in reducing student loan payments.

When you choose student loan consolidation with a private lender, you may be eligible for a lower rate based on your credit score, plus receive the benefit of combining your loans into one easy-to-manage monthly payment. You could even combine federal and private student loans in your new loan as long as you're comfortable exchanging the benefits of the existing loans. If you're interested in seeing how the benefits of consolidating student loans could apply to you and what your new loan would look like, use our Loan Estimator tool.

Refinance for a lower variable rate or lock in a fixed rate

Interest rates are based on credit scores with most private lenders, and the variable rate you receive may be lower than the rate on your current loans. However, it is possible for that variable rate to go up or down each month. If the rate goes up, your monthly payments will go up, too.

If your current student loans have a variable interest rate, your monthly payment can change as the rate changes. If you refinance into a fixed-rate loan, you'll have the certainty of a consistent monthly payment. However, the fixed rate you get today will likely be higher than the variable rate you have right now. Your new monthly payment may be more than your current monthly payment, but your payment will never increase.

Applying for a private refinance loan could help you reduce student loan payments and gain more control over your debt. You could potentially take advantage of lower student loan interest rates, longer loan terms, and lower monthly payments to free up funds and focus on what’s next.

More information

We are committed to helping you reach your potential. To learn more about how refinancing your student loans could help you reach your saving goals, check out our refinance calculator, call 866-999-0142 to speak with one of our Student Lending Specialists, or visit your nearest Citizens Bank branch.

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