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Should I Refinance my Student Loans?

Feeling Overwhelmed by Student Loan Payments? Asking Yourself…Should I Refinance my Student Loan Debt?

Student Loan Debt: Student Loan Debt is at an elevated level these days. Many can simply not afford to pay the cost of college tuition and loans are a necessity for a college degree (and grad school for that matter). Along with these student loans comes a hefty price tag for your degree. Student loan payments are high, although they do offer income based repayment programs, the payments still eat up a good chunk of your salary, and interest rates, are considered fairly high for many who took out the loans several years back, and now see students with much lower rates in the 3-4% range for student loans issued in the present. As many student loans are in excess of $50,000. I have heard of many fellow lawyers with several hundred thousand in student loans (as a combination of undergraduate and graduate school debt).

As you can see, there is a staggering cost of carrying this debt for the 20-30 year repayment plan, that can have a great impact on one’s life and financial future. Therefore to address it, you must treat it with the important focus it deserves. Attack those student loans over time and get rid of them. Personally, I recommend a balance of increasing your loan payment and ensuring you are putting away money in your tax deferred retirement plan(s) to allow interest to compound over time and grow tax free (can’t miss out on that opportunity). You can and certainly should use loan repayment calculators to determine how long it will take to repay your loans if you add x amount per month. Another method to help attack your loans which will not alter your amount much is to speed up the date of payment. For example, if you have a payment auto drafted every month of $500, change it up and start paying $250 every two weeks. In doing so you will be making some payments earlier and thus end up paying less interest over time. Additionally, you will end up making more payments each year as not all months have the same number of days.

One of the most common questions these days involving student loans is should I refinance them?

This answer is many cases an absolute yes. However, this depends upon a combination of things such as how much your interest rate is and what payment terms you are willing to agree upon. Some repayment programs may have you agree to a 10 year term (i.e. speed up repayment) to lock in a lower rate, in spite of the fact that you may have had 15 years left, etc. This can alter your payment a bit, so you will need to see what you are comfortable with. However, it also may have the effect of getting you to prioritize paying off your student loans and also provide you with the benefit of paying less interest over time, due to your faster repayment (10 year repayment agreement) and reduced interest rate). However, as you will see from going through the application process and checking (without agreeing to anything) on the rates and terms offered, this could save you thousands in the long term which is well worth it.

The sooner you can get rid of student loan payments the better. Just picture it, set a goal of ridding yourself of your student loans and do it. Set a 5 year goal, a 10 year goal, then decide what you are willing to do to get there. Imagine your life when done with student loans and savings the $500/month you were paying, having the added financial security, or using it for something you truly need. There are many ways to prioritize payoff of student loans to get there, it is simply a matter of what you as an individual, or your family are willing to sacrifice or do. Could you give up your extra cable channels if it meant getting to rid yourself of this debt permanently sooner? Could you use a smaller car, share a car? Are you over paying for insurance? Spending extra at the super market? Be creative and find ways to prioritize and attack/rid yourself of this debt, it’s weighing you down.