A guide to refinancing student loans

Student loan debt in America stands at about $1.5 trillion as of June 2018, according to Forbes, among approximately 44 million individual borrowers. Rather than staring shocked at those numbers, those with such debts must choose the optimal repayment path for their situation. 

"Refinancing is the most likely method of bringing down monthly student loan payments."

For many, refinancing is the best choice. (Consolidation, the other common option, is only available for monies borrowed from the Department of Education, which isn't true of refinancing.) If your installments are too big a burden, refinancing may ease up your finances - provided you follow certain careful practices.

Getting the refi ball rolling
Student Loan Hero recommended determining your specific reason for refinancing before contacting any lenders. Do you hope to lower your interest rate, reduce monthly payments or cut down your loan's term to pay it off faster?

Depending on how you refinance, you can accomplish at least two of those three priorities, though probably not all. For example, a lower interest rate over a shorter term raises monthly payments but saves thousands in interest. By contrast, a longer term cuts down each installment and likely still comes with a reduced rate, but you won't save as much overall. Choose carefully, as the decision will have ripple effects throughout your life.

Crunching interest-rate numbers
In most circumstances, you'll lower your existing rate by refinancing, according to a separate Forbes piece. Doing so is in your new lender's best interest. How much it falls depends on your credit. With a good score, your rate may drop to 2 percent or less. Average or middling scores might only get you from 6 to 12 percent down to 4. 

Using both methods
It's possible to consolidate all your federal loans and refinance the private ones. Most in-debt students have both. If you choose federal consolidation, remember that the interest won't drop: It becomes the weighted average of your present interest rates rounded up by 0.125 percent. Monthly payments may still drop, however, because you can elongate consolidated loan terms to a maximum of 30 years. 

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