Young professionals with large student loan balances are often stuck between a rock and a hard place. While many graduate school attendees land impressive jobs after they leave, these rising stars often have monthly payments that are financially burdensome.
For borrowers dealing with loan balances in the $40,000 to $300,000 range, student loan refinancing can provide substantial financial and emotional incentives. Here are four ways that refinancing your educational debt could benefit you:
1. One simple monthly payment
It can be cumbersome to keep track of numerous student loan balances and payment dates, particularly when they’re spread across several loan servicers. By refinancing your loans, you can maintain one balance in just one place, making it easier to know who to contact when questions or concerns arise.
2. Potentially lower interest rate or monthly payment
Recent graduate school alumni have seen loans with rates in the six to eight percent range. Those with the strongest credit histories can potentially lower their existing rate by several percentage points, consequently decreasing their monthly payments.
3. Get out of debt faster
Those who choose to refinance into a shorter loan term — a five-year or a seven-year — will get out of debt faster and could benefit from substantial savings in interest payments over the loan's duration. For example, a borrower with a $147,000 loan can save more than $33,000 over the life of the loan by refinancing.
4. New banking opportunities
As their careers progress and wealth is built, budding professionals often need to tap financial experts for their knowledge and guidance. By developing a personal relationship with a financial institution now, young professionals can begin to develop a rapport with a private banker, preparing them for when it’s time to buy a house, consider charitable giving options, or invest the wealth accumulated along the way.
Your banker will be able to help you determine when student loan refinance makes the most sense. If it’s the right fit for you, refinancing your educational debt can offer a wide range of benefits and set you up for continued financial success.
*Assumes an original loan amount of $147,000, 10-year term, and a rate of 7.21% APR, refinanced to 3.35% APR. Total savings over the 10-year term would be $33,531.78. Loan amount reflects all customers who refinanced their student loans with First Republic Bank between 1/1/2015 and 9/1/2017. 7.21% was the Direct Plus Student Loan Program rate effective 7/1/2014 to 6/30/2015. Actual savings may vary based on the interest rates, balances and remaining repayment term of the loans being refinanced.
The terms of a refinance may differ from the terms of your current loan. For example, loans may not contain special features such as forbearance periods and income-based repayment plans available for student loans. Applicants should discuss loan terms and conditions with their banker and contact their legal and financial advisors for advice on deciding whether this is the right product for them.