We all have student loan debt from college and they all look pretty much the same when you get a fresh start, just like how they looked when it had not been for all intents and purposes, even back in your mid-teens and early twenties.
As time goes on, however, things change, especially if the interest rates rise. So how do we ensure that our student loan debt remains as much of a concern as possible? How do we ensure we are getting all that we can out of this situation? And what does refinancing of these student loans mean?
What is Refinancing?
Simply put, instead of paying back a borrowed sum of money that’s currently not due to us, we now pay back a lesser amount of money in total. This is because we’ve refrained from using the funds that we’ve already borrowed to make payments on other debts and will be repaying the amounts sooner rather than later, thereby allowing some of the principal amount to stay at current rate and interest levels. By refinancing our student loans, we’re able to reduce the overall cost of our education by paying off a proportionate bit smaller than we will have used to. That way, we can reduce the interest expenses without affecting the overall quality of education that those funds can provide to future generations of learners.
How Do We Refinance Our School Debt?
There are many ways you can go about refinancing your school debt and there are plenty of available websites that allow you to compare various financial services with each other in order to make sure you choose for yourself exactly what you need. In the very beginning, after looking over our personal finance and budgeting, we’ll consider one or two options. There’s no hard and fast rule that says which option to take. However, there are some basic principles and considerations that must be made in terms of refinancing, and these are listed below.
Receive an installment payment plan (IMP) in which you are paid a fixed sum by monthly instalments as opposed to direct overdrafts.
Your repayments are guaranteed by any lender who has a guaranty on them—such as a parent, guardian or family member.
Your lender has a certain percentage of your income to cover your repayments. The percentage is known as the Lien Percentage. If you were to be charged 2% of your income, you can expect 1% back from the original loan amount. This makes sense since you’d pay less in total but would pay more at the end of the loan.
If you’re in college when having defaulted on your students’ loans, you would have the automatic right to use a few years of credits that would otherwise have expired. Since many lenders tend to charge interest on past due balances, by refinancing early rather than late you can save more money.
What Are Some Pitfalls to Make When Refinancing?
1) Repayment period is shorter.
Your repayment period could potentially be shortened up to three to four months from longer repayment periods and interest rates. Also, the rate or interest rate applied on your repayments would be lower than what you were originally paying. It may also occur that the payment is deferred until the next month.
2) Higher interest rates can lead to higher monthly instalments and higher repayments overall.
Higher interest rates can result in greater returns for both you and your lender. Also, if the average cost of living increases, the interest rates would increase with every dollar spent, meaning larger balances and more interest payments.
3) More information – make sure to provide your lender the necessary documentation, such as bank statements, tax records, etc.
4) Pay with a credit card.
Yes, it feels good to finally be debt-free! But did you know that a big mistake can put you into even worse debt? A lot of people get carried away when they think they are free and end up with too much debt that they can’t afford to keep it paid back. Not only that, but paying with a credit card can increase the interest rates and the fees that you have to pay while making all sorts of poor financial decisions.
What Have I Learned From My Post-Graduation Experience?
I was lucky enough to get my Master’s degree in Financial Management at Fondazione Cesarini Barrosa. After a number of years of work experience I took some courses, including one on Money Management and another on Fundamentals Of Managerial Accounting. These two programs have helped me with understanding the differences between corporate finance and management accounting, as well as help me understand the importance of financial planning, forecasting and budgeting. With postgraduate study, I got to learn how to interpret the numbers and the data, as well as help me determine the best alternatives for myself at the moment. One thing you can notice once you’ve finished university is how quickly life changes, so don’t panic when the world around you seems to be changing all the time! All of these factors should remain in mind while putting together plans and strategies for how to deal with things that you cannot control!