College loan refinancing is often a smart option for students looking to consolidate all of their college loan bills into one easy payment and potentially retain superior interest rates. The decision to consolidate can also result in stable, lower monthly payments with a constant fixed interest rate.
In 2016, The SF Chronicle spoke to Patricia Scherschel, vice president of the popular private lending company, Sallie Mae, about college loan refinancing. Scherschel mentions consolidation as a great debt-management arrangement, and in addition, accurate repayment of student loans can be an excellent credit-building practice for recent graduates as well.
Do you qualify for college loan refinancing?
The refinanced loan repayment options virtually mirror their originally federally backed loan counterparts.
College loan consolidation and refinancing repayment options include:
• Standard repayment- borrower pays a set amount every month for the entirety of the payback period
• Graduated repayment- borrower pays interest only for the first two years in the life of the loan, then for the third and up to the fifth year, payments increase incrementally
• Income-contingent repayment- the borrower pays a portion of his or her salary, based on expected total monthly gross income for the life of the loan
• Extended repayment- the borrower chooses either the standard or graduated repayment plan but lengthens the life of the loan to 30 years
Repaying on a single, consolidated and refinanced college loans are simply easier for newly working graduates to manage. Scherschel also explained that with a longer repayment period, consolidated loans put the borrower in the “driver’s position” and more in control of payment size. Students may make payments larger than the required monthly sum to alleviate financial burden in the future.
A college debt refinancing plan, known as the Direct Consolidated Loan is available from the U.S. government and the Department of Education. The Direct Consolidation Loan offers low-interest rates and an all-inclusive way to repay both federal and private loans. The loan is offered to vast numbers of potential borrowers including parents, undergraduate students, graduate students, and even doctoral students.
Federal lenders refinance and consolidate loans using a weighted average of existing loans rounded to the nearest 0.125% as of 2016. Federal lenders then roll all loans and the new interest rate into a fixed rate consolidation loan with a Department of Education mandated interest rate cap of 7.25% in the year 2017.
Currently, the United States Department of Education offers consolidation and refinancing for virtually all college loan programs including Stafford Loans, Perkins Loans, PLUS, Direct Loans, HEAL, NSL, FISL, Health Professional Student Loans, and Guaranteed Student Loans. For students under the crush of mounting student loan payment obligations coming six to twelve months after leaving school, loan refinancing and consolidation is an attractive avenue of approach.
Utilizing the Direct Consolidated Loan consumers receive the same perquisites as individual federal financial packages such as: flexible repayment options, retained subsidy benefits and the ability to defer on a payment. Borrowers also receive these additional advantages: the simplicity of only having to deal with one lender and one monthly payment having reduced payments with no minimum requirement to apply.
No minimum requirement to apply refers to the policy allowing students and families to apply for college loan refinancing at any point during the repayment period. However, once a borrower applies for loan consolidation, the refinanced loan is locked in his or her interest rate is locked-in for the entire life of the loan. Students need to act now to take advantage of current low-interest rates. Loan counselors can help students and families determine if consolidation is the appropriate course of action.