Student Loans Refinancing

The ability to refinance a student loan, whether private (or plus) or Federal is entirely based on your credit score. Student loans refinancing is usually based on a point over the standard interest rate. Right now (late spring 2010) the average student loans refinancing rate is 8.83.

The reason is simple, it's a non collateral loan, that means there is nothing of value to sieze in case you fail to pay the debt. Federal Student Loans have been set at 6.8% since July of 2006, Student loans between July 1, 1998 and June 30, 2006, that have not been adjusted are accruing interest at a 1.88% variable rate for borrowers who are in school, grace, or deferment. 

And for borrowers who are in repayment or forbearance they are at a 2.48% variable rate. Student loans that were granted between July 1, 1995 and June 30, 1998, that have not been adjusted have an interest rate of 2.68% variable for borrowers who are in school, grace, or deferment and if in repayment or forbearance, a 3.28% variable rate. Student loans that granted between July 1, 1994 and June 30, 1995, with no adjustments are accruing interest at a 3.28% variable rate. 

So depending on when your student loan originated your interest rate will vary. That's an important factor and if your loan was granted prior to 2006 with one of the super low rates, it may be very difficult to get a better rate. The only other option is to extend out the payments for a greater amount of time.

That does increase the over all cost but will lower the payment if the interest rate is comparible. But if you have a loan at 3.8% and you jump tp 8.8%, I doubt that extending the payments out will be cost effective.

People with Private Student Loans may already be paying a much higher rate than the Direct Government Student Loans charge. So there may be enough savings to merit a student loans refinancing scenario.

It's all about the number of payments (time) and the interest rate that will effect the monthly payment. And you can't mix Direct Government Student Loans and Private Student loans in one deal. You could refinance each individually, or pay off the original loan and create a new separate loan.

Another consideration is that the Direct Government Student loans do have a few benefits in relation to the monthly payment amount. Depending on when you received your loan, you may have a cap of 10% of your monthly earnings, 20-25 years limit on payments, or other special arrangements.

First Priority is to figure out exactly what your current interest rate is, the terms of your loan, and any special rules that currently apply. That should provide a good picture of what you now pay and for how long. 

The next thing to do is access your current credit status. You are entitled to a free credit report from each of the three major credit bureaus so you should get a review your credit report. You can learn how to do that here: Yearly Free Credit Report.

Once you've reviewed your credit report and corrected any incorrect information, the next step is to look at the different lenders in both your local area and on a national level. Most banks have a department just for Student Loans, and many other financial institutions do to.

There are also investment firms, civic organizations, school organizations, and other entities that might have some programs or opportunities for student loans refinancing. Even your employer or maybe your parents employer could have some kind of assistance or special deal that would be worth checking out.

When doing research, make sure you take a long hard look at any loan agreement. Look at the interest rate, the term of the loan, and any additional fees or costs. Also check for any penalty causes, they can be quite severe. Read the entire document and if you don't understand something, ask. It wouldn't be a bad idea to have someone else who is knowledgeable in loans take a look too, just to be safe.

Student loans refinancing may be a good idea and have some benefits. But it wise to make sure you know where you stand now and what benefits might be possible under any refinancing. Check your credit report and make sure everything is accurate before you start looking for a solution. And last but not least, always check both local and national sources for possible options.