What to Consider When Refinancing a Student Loan

When the economy is poor, students in Boston and across the country take the hit.  They do their best to make ends meet as it is when in college and when the cost of living increases it makes it even more difficult.  Additionally, once they graduate they have a ton to pay back in student loans, thanks to the rising cost of a good college education.  This often leaves many students trying to determine the best way to pay back their student loans as well as lower their monthly payments to something they can afford.

These students actually have a couple of options available to them and one of those is refinancing a student loan.  When you are refinancing a student loan there are a few things to consider:

Federal and private student loans should be refinanced separately

Student loan rates vary, so your credit will come into play.

The reason that federal and private student loans should be refinance separately is because they are in two different interest rate zones.  Your federal student loans are typically going to have a much lower interest rate and you want to keep that a low as possible.  When refinancing a student loan that was obtained from a private lender, these were basically personal loans and they are made with the assumption that once you graduate from college you're going to begin making more money in the future.  When refinancing a student loan from both federal and private sources, you're likely to end up with a higher interest rate on the combined principal of the two types of loans than you would if you refinanced them separately.

With private loans, these rates vary by lender so when you're dealing with a private student loan your credit history will come into play.  This means that you need to be careful throughout college and do what you can to keep your credit in good shape.  It's never too late to begin keeping an eye on your credit and you'll want to fix any errors that you find along the way.  

One other concept to keep in mind when refinancing a student loan is that around July 1st of each year, the rates on refinancing federal student loans as well as the interest rates on federal student loans will change.  If it is suspected that rates are going to rise, then you will want to begin refinancing a student loan before they go up at the end of the year.  Keeping this information in mind as you go through Boston College or another university will help you have an action plan when you graduate and it's time to begin repaying your college debt.

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