There are many misconceptions about student loan refinancing options. While some are just from confusion about the choices available, other myths arise from companies that try to scam consumers. For many, student loan refinancing can help you get back on your feet and begin making payments. Understanding the common myths about student loan refinance options can help you find the best ways to refinance your loan.
Myth: Consolidation and Refinancing Are the Same Thing
When you consolidate your loans, you are basically making multiple, smaller loans into one larger loan. This often helps to reduce your monthly payments and paperwork, but it is not the same thing as refinancing. Student loan consolidation only combines your payments, so you end up paying for the same amount of debt. With student loan refinancing, you can change the loan terms, duration or interest rate. Consolidation may help you to lower your monthly payment, but it is not the same as refinancing.
Myth: All Refinancing Options Use Variable Rates, And Variable Rates Are Dangerous
Some people choose to avoid refinancing options because they believe that they will be given a variable rate. While some refinancing programs do use variable rates, it is possible to find a fixed rate loan at various lenders. Even if you are only offered a variable rate, this is not necessarily a bad thing. Variable rate student loans often offer lower interest rates. Although these interest rates can change over time, the cost savings from when the interest rate is lower often equal out the time periods when you pay more in interest.
Myth: Federal Loans Cannot Be Refinanced
For some reason, this myth continues to gain traction. This might be because the government does not directly offer a refinancing option. Fortunately, you can still refinance your federal loans through private loan programs. Many people still choose to keep their federal loans because these loans give them income-based repayment options and loan forgiveness programs. If you are making a stable income, refinancing may help you to save money every month and pay lower interest over the course of your loans.
Myth: Refinancing Is a Scam
Refinancing your loans is not a scam. There are useful options available that can help you to lower your monthly payment. You may be able to pay lower interest over the course of your loan, sign up for income-based repayment or defer your payments. There are some scam artists out there, so make sure that you use a reputable lender. Most direct lenders are fairly transparent, so you can easily look for hidden fees or unexpected costs.
Refinancing your student loans can help you to save on interest costs or gain better loan terms. This option is not ideal for everyone, so carefully consider what you want to do beforehand. As you go through the process, make sure that you do not fall for these common misconceptions. With the right knowledge and information, you can prepare to meet with your lender and refinance your loans.