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Young professionals with large student loan balances are often stuck in a difficult situation. While many graduate school attendees land impressive jobs after they leave, these new professionals often have monthly payments that are financially burdensome.
As of 2019, more than 2.5 million Americans have student loan debt greater than $100,000. Whether your student loan debt is above or below that, refinancing your student loans could have tremendous financial and wellness benefits. Here are four key benefits of refinancing your student loans:
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 whom to contact when questions or concerns arise. If you have multiple existing loans, you may be able to refinance and bundle them, leaving you with just one monthly payment to manage.
When it comes to payment management, a single monthly payment is more convenient for many borrowers. This single payment may also decrease the likelihood of accidentally missing a payment, which can help maintain your credit and help you avoid late fees.
2. Potentially lower interest rate or monthly payment
Recent graduate school alumni have seen loans with rates ranging from 6% to 8%. Those with the strongest credit histories can potentially lower their existing rate by several percentage points, consequently decreasing their monthly payments. Essentially, if you have better credit and are in better financial standing than you were when you initially took out your student loans, there’s a good chance you could qualify for a better rate.
When you refinance your student loans to another lender, such as First Republic1, you could potentially take advantage of lower rates — which could help you lower your monthly payment or pay off your loan faster.
3. Get out of debt faster
Those who choose to refinance into a shorter loan term — a five- or a seven-year term — will get out of debt faster and could benefit from substantial savings in interest payments over the loan's duration. Learn more about ways to pay off your student loans faster.
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 refinancing 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.
Before refinancing your student loans, you should know that the terms of your new loan may differ from those of your current loans, so you should carefully review the terms of your current loans, both private and federal. It’s also worth noting that even if you’ve already refinanced your loans once, doing so again could save you additional money.
If you don’t intend to use your existing loan’s income-based repayment or forgiveness provisions, you may benefit by refinancing those private and federal student loans to a lower interest rate. Once you refinance, however, you can’t get those provisions back. You may also lose the interest rate deduction (if you qualify).