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When to refinance a student loan

 


If you have a private student loan, refinancing usually makes sense if you can save long-term interest  or reduce your monthly payments. With a 10-year loan of  $37,000, you can save just 1 percentage point on interest rates, saving about $ 18 a month and $ 2,200 interest for the entire duration of the loan. You can also save even more by refinancing high-interest debt, such as a student loan. Even if you don't qualify for a low interest rate, refinancing the same 15-year loan can save you about $ 100 a month. 

 But the word of warning: When you extend the life of a loan, you will pay more interest over the life of the loan. In the above example, if you extend the loan term by 5 years, you will pay interest of $ 5,500 or more. 

 Refinancing a student loan without paying a prepaid fee is easy, so there are many other situations where it makes sense. You can refinance a floating rate loan to convert it to a fixed rate  loan. Refinancing is also a way for the borrower to remove the co-signer from the loan.  Mary Hobbs, founder of the 

 personal finance website Pennies Not Perfection, was able to refinance her mother's parent's loan and put it in her name. "I didn't particularly want my mother to earn a stable income with this huge  student loan stack, so I was able to pay them off, so I do it. I decided to do that, "says Hobs. By refinancing these loans to her name, Hobbes was able to reduce his interest rate from 8.5% to a floating rate of 2.57%. Hobbs plans to repay the loan  in a couple of years, so the low floating rate will make the loan a little faster.

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