Education is not cheap, in fact in today’s world it is extremely expensive to pay for quality educational courses or even to attend university. The number of students going into debt is gradually increasing every year.
To help students clear their educational loans, there are now certain programs that have been initiated such as the student loan refinancing program as well as the student loan forgiveness program.
If you are someone who is trying to get rid of your existing debt, these programs can immensely aid you in paying off the money you owe and is based around your current financial situation.
What are the Benefits of Refinancing a Student Loan?
Student loan refinancing is a program offered by certain loan providers where they pay off the amount you owe on your existing loan. After which, a new loan will be assigned to you with better interest rates and repayment plans that are calculated according to what you can afford rather than what you must pay.
Both federal and private loans can be refinanced. However, do keep in mind that if you are someone who banks on the federal benefits program, you will lose these benefits once you choose to refinance your student loan. If you personally require these benefits and heavily rely on these government packages, then refrain from refinancing your loan at any cost.
Not everyone actually needs to opt for the student loan refinancing option. If you have been sitting on the fence for a while, the following circumstances listed below will give you some things to consider on whether you really need to go ahead with the refinancing process.
If You Have a Good Credit Score
Individuals who have an excellent credit score and credit history can benefit from refinancing their student loans as loan providers will perceive the individual to be trustworthy and will offer him better interest rates and loan terms.
If You Have a High Interest Student Loan
As student loans get more and more expensive each year, so do their interest rates. Sometimes, people have no choice but to accept the loan with a very high interest rate as they are in urgent need of the money. Due to this, they will end up going into debt much faster as the high interest on the monthly repayments will be immensely burdensome.
Once you skip making payments, your credit score will also be negatively affected. If you are facing a similar situation to this, it is recommended that you consider refinancing your student loan as it can help save a lumpsum amount in the long run.
What You Need to Know Before Going Ahead with Refinancing Your Student Loan?
In the right circumstances, opting to refinance your student loan can work wonders on your financial status. There are disadvantages associated with this process as well, as mentioned earlier, if you choose to refinance a federal student loan, you will lose access to the privileges that come with it. Some of these are listed below.
Income Driven Repayment Plans
The income-Driven Repayment (IDR) plan is provided by the federal government and allows borrowers a certain amount of flexibility when it comes to repaying the loan amount. Individuals who have a federal loan will get the option to utilize this plan where the loan provider takes into consideration the monthly income level of the borrower and accordingly devises a repayment strategy.
Sometimes a borrower can find himself in a position where he fails to make the monthly loan repayment due to unforeseen circumstances. In situations like this, he can choose the option of forbearance.
This will allow him to delay the loan repayment amount due but it will also result in the interest of the loan increasing. Due to this, the total loan amount to be paid back will also increase once the forbearance duration period comes to an end.
What is a PAYE Calculator and How Does it Benefit People in Debt?
A PAYE calculator is quite useful as it can aid borrowers in strategically planning out how to clear their existing loan at a faster pace. Using a PAYE calculator is extremely straightforward and self explanatory. However, there are certain details that are required in order for you to derive accurate results, these are as follows.
- The rate of interest of the loan.
- The total amount of the federal or private loan.
- The loan amount agreed upon to be paid each month.
Fill in the following details and select the ‘Calculate’ option. Once the results are displayed, you will be able to gauge exactly how long it will take to complete making the student loan repayments as well as the total interest amount you are obligated to pay.
In case you are too much into debt with no clear way out, the last option is opting for the student loan forgiveness program. This program can write off the loan amount you owe or in certain cases, it can release you from paying the entire loan itself. However, not everyone gets selected for this process.
The most popular type of forgiveness program is the Public Service Loan Forgiveness (PSLF) program. This is specifically designed for employees who work in the public sector. After the borrower has made 120 loan repayments towards the current loan and is still facing difficulty, only then can he request for the PSLF program.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.