Student Default Article
The Skinny on Student Loan Refinancing
Many college students don’t realize how hard it will be to maintain their student loans once they graduate. They don’t think about the fact that it may take them some time to find a job in their field, and to start bringing home a decent income from that job. There are other financial responsibilities to think about, rent, utilities, travel expenses, food, clothing, etc. It can be very stressful for the recent graduate trying to make ends meet and still make all of those hefty student loan payments each month.
Refinancing your student loans can be an easy solution to an impossibly tight post-graduate budget. You can get an extended amount of time in which to completely payoff your debt, which can greatly reduce those monthly payments that are such a source of financial strain right now for you. But, if you look at the big picture, by refinancing your debt and extending your repayment period, you will be paying a lot more in the long run when you add in all of the interest that will accrue. If there was anyway that you could cut your expenses, or maybe take a part time job to tide you over until your career takes off, you would likely be better off in the long run.
You have to pay your monthly payments, or else your credit score will be negatively impacted, which can lead to even more financial trouble for you down the road. So it is a balancing act, you can refinance your loan and get payments that you can easily afford on your current income, and still have money for the things you think you need, or you can tough it out, work a part time job, and pray that you will have the money you need to make those payments on time. You have to decide which option is best for you.
If you are already behind on your student loan payments, then you will be unable to refinance until you bring them back up to date. If this is the case, you should talk to your lender and see if it would be possible to put your loan into forbearance, which would maybe give you time to get that promotion at work, or find a cheaper place to live so that you could afford your student loan payments. Missing your student loan payments will greatly impact your credit, and if you go so far behind as to be in default, you can expect your wages to be garnished, which will only make things that much more difficult for you.
Refinancing and extending your repayment length is a good solution for those who only expect to have problems in the short term. Just because you have refinanced to get a lower payment doesn’t mean that you can’t make extra payments when your budget allows, and by doing so you would save some of that interest from accruing ten years down the road. Check with your lender and make sure that if you do refinance, you are allowed to make extra payments towards the principal, and if you are, then refinancing may be the answer to your short term financial crunch.
Don’t make the mistake of going through school thinking that you student loans are free money that you can spend anyway you like. You will have to pay them back at some point, and they will get their money back one way or the other, so don’t think that you can let your payments slide and get by with it. When you have extra money, send it in towards your principal, and if your lender won’t allow you to do that, then put it into an interest bearing account, and eventually use it to payoff your loan, or to make your payments when you find yourself in a bad financial situation.
Remember that you used the money for your education, and that regardless of what else you have to pay, you have to pay that money back. Try to only borrow enough to meet your college needs, and make certain that you do whatever it takes to make those payments promptly, so you can protect your credit. You never know when you may need it in the future!
