Refinancing Student Loans

Have you taken time to assess your student loans recently? If you haven’t, you can do that now, because it could help you save a lot.

Why You Need to Reevaluate Your Student Loans

Sometimes, looking at the details of your loan can be very scary, especially when you owe a pretty huge amount, and you don’t have enough money to offset them anytime soon. The easy way to handle this is by automating your monthly payments without minding if it takes a toll on you.

What most people do not understand is that depending on the interest rate and a few other factors, a huge percentage of their monthly payments goes towards interest. Therefore, even if you pay hundreds of dollars monthly, it may not make any appreciable difference on the value of your total debt. This has been the case for a long time, and there was nothing borrowers could do about it.

Consider these alternatives before refinancing your loans

For everyone who has federal students loan, here are some payment options you may want to take advantage of:

Income-based repayment: This payment option allows borrowers to make monthly payment based on their income and family size. Income-based repayment comes in four different plans- Income-Based Repayment (IBR), Revised Pay As You Earn (REPAYE), Pay As You Earn (PAYE) and Income Contingent Repayment (ICR). When you become qualified to use these plans, you’ll need to verify your income every year, so that your monthly payment could be adjusted to reflect the amount you earn per month and your family size.

PAY As You Earn (PAYE): On this payment plan, you’ll pay 10% of your monthly income. If you’re able to make these payments on time for 20 years, all your debts will be forgiven. Note that loans taken before 2007are still caped at 15%, and would be forgiven after 25 years of on-time payments.

Loan Forgiveness: Apart from the payment options available to you, for some reasons, your student loan may also be forgiven. For instance, if you’re a public service worker, your federal student loan may be forgiven after 10 years of on-time payment every month.

Other options are forbearance and deferment, which allows borrowers to defer their payments for one or more years. In the deferment options, interest does not accurate on subsidized loans during the period of deferment; while on the other hand, interest does accurate in the forbearance option, although the period of postponement is more flexible.

Forbearance helps borrowers suspend their loan payments till they’re able to pay them, but the interest rates may accumulate so much that at the end, they would have a very overwhelming amount to pay.

One may ask, what happens if the period you can take advantage of the postponement plan has elapsed, or if you earn so much that using an income-based plan would not be a huge loss to you?

That’s where refinancing your loan becomes important. This has helped lots of borrowers escape the throes of high interest federal and private loans.

When and How to Refinance Your Student Loans

Refinancing your student loan will help you reduce the amount you’ll pay, the total cost of your debt and the time it takes to pay them off.

In the past, borrowers didn’t have many options apart from those who their program qualifies them for loan forgiveness. However, at the moment, there are a myriad of options you can use to refinance your student loan, and safe a lot of money.

When should you consider refinancing?

Here are some factors you need to consider, to know when you should refinance your loan.

1. If you want lower interest rate
Refinancing your loan gives you the opportunity to enjoy lower interest rates which may not have been available when you took your student loan. So if you took the federal student loan or private loan when the interest rate was high, refinancing the loan will give you the opportunity to enjoy lower interest rates, so you can save more overtime.

2. When you have a co-signer or great credit
There are some factors lenders consider before offering student loans. They include your income, educational background, credit score and employment history. Different lenders have different reasons for considering these factors, but one sure thing is that having credit score of 700 and above increases your chances of getting lower interest rates. This doesn’t mean that you can’t get great deals with decent credit scores though, however, if your credit score is low, then you may need to get a co-signer to get better refinance offers.

3. When you have a strong source of income
People who have a solid income relative to their debt get better refinance offers than those who do not. However, no matter how solid your income is, lenders will also consider your other debts, including car loan, mortgage, etc. If your income is very high, but your debts are higher, then you may also need to get a cosigner before you can get a good refinance offer.

Considering these, if you aren’t qualified to get a good refinance offer at the moment, you can also get it in the future. All you need to do is concentrate on reducing those other debts as soon as possible. When they’re down, you can then apply for loan refinancing.

Don’t refinance student loans if you haven’t made the most out of it

Refinancing a federal student loan entails that the lender would pay off the loan, and offer you a new private loan. When this is done, you would no longer be able to benefit from payment programs available for federal student loan holders like deferment and forbiddance, income-based repayment and loan forgiveness (applicable to public servants). If you haven’t made the best of these programs, then you shouldn’t consider refinancing.

How to save even more with refinancing

People refinance their loans to get lower interest rates. Although this works a lot, you can save even more money by going for a shorter loan term. Although this may take a toll on your monthly finances, it sure enables you pay off your debt on time at even lower cost.

At Bluestar Mortgage we are here to help. Call us at 321-400-5545 or email us at

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