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The single most important way to
reduce the total amount you repay is to refinance
student loans during the post-graduation grace period.
Following graduation, every student has the right to a 6
month grace period before they must begin repaying their
loans.
During this grace period, the
rates to refinance student loans are a full .60% lower than they are
once the loan enters into repayment status. When you refinance
student loans during the grace period, you will lock in these lower
rates for the entire repayment period.
Lender incentives
can save big bucks when it's time to refinance student loans
Not all companies that provide
college loan refinance products are created equally, and where they
differ the most is in the interest rate reduction incentives
offered. Aside from choosing to refinance student loans during the
grace period, lender incentives can be the most effective way to
shave a big chunk of money off of your monthly payment.
Look for those that offer
interest rate reductions versus dollar amount reductions then
compare the percentage of the reduction. Reductions for on-time
payments and auto debit are the most common types of incentives.
While many companies offer a .25% rate reduction for payments made
by auto debit, ScholarPoint gives .5%. Many lenders also offer a 1%
interest rate for making 36 months of consecutive on-time payments.
ScholarPoint offers this 1% rate reduction a full year earlier.
Deferment and
Forbearance starts over
Student loans allow a post-grad
to put loans on hold for a specific amount of time over the course
of the student loan repayment period. During this hold, called a
deferment or forbearance, the borrower does not need to make
payments on the loan although interest does accrue and is added to
the balance of the loan.
The deferment and forbearance
benefits aren't lost when you refinance student loans - in fact, the
"clock" starts over again so that these hold periods are refreshed
and can be used again in full.
You could pay more
by incorporating fixed rate loans into your consolidation
The reason it's smart to get
started with student loan refinancing now is that most student loans
are written with a variable interest rate. This means that every
year when the federal government decides on a new interest rate, the
payment on your old student loan will change if you haven't
refinanced.
However, not all student loans
are written with variable interest rates. Some types of loans like
the Federal Perkins Loan and the HPSL loan are fixed interest rates,
meaning that the rates always remain the same. If the interest rate
offered when you refinance student loans is higher than that of your
fixed rate loans, then you could actually pay more by adding your
fixed rate loans to the mix when you refinance student loans.
ScholarPoint lending specialists can help you find the most cost
effective solution in terms of which school loans to incorporate.
No reconsolidation
after July 1st, 2006
For years, borrowers have enjoyed
the flexibility of refinancing student loans multiple times in order
to take advantage of better interest rates or to extend their
repayment period. As of July 1st 2006, student loan borrowers no
longer have this option except for in a few select circumstances.
These new limitations are part of the "Deficit Reduction Act," a set
of changes in place to begin repair of the nation's rising deficit.
Since July 1st, 2006 borrowers
only have the option of college loan refinancing in cases where some
of the loans were left out of the original consolidation or the
borrower has new college loans to add in or if the current lender
does not offer an income sensitive repayment plan. Because borrowers
are more or less locked in with the first lender they choose, it's
critical to find a lender with a solid reputation and high incentive
savings options.
In order to
refinance, loans cannot be in default
When refinancing a student loan,
the payments must first be current and not in default. Loans that
are current include those that are in their grace period, in
deferment or in forbearance - as long as there are no payments due.
If you are a month or so behind
on your student loans because of extenuating financial strain, try
contacting your current lender about securing a hardship deferment
before you refinance student loans. Oftentimes, if the payment is
just a little overdue and your financial situation qualifies, the
lender will backdate the forbearance thus bringing your loan current
so that you can move forward in your effort to refinance student
loans.
A consolidated
education loan cannot combine private and federal loans
If you've got loans from a
private lender as well as loans that were granted through a
government student loan program, you'll need to secure two different
loan consolidations.
Most lenders recommend
consolidating federal student loans first, and then working on
private loan consolidation afterward. Separate consolidations are
only necessary for private and federal loans. Any type of federal
loan can be combined such as subsidized and unsubsidized Stafford
loans.
Refinancing student loans is a
wonderful way to lower monthly payments and lock in low fixed rates.
These 7 key factors can help you to save even more by taking
advantage of every benefit that student loans have to offer.
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