Getting a Master of Business Administration (MBA) is a great career move. A Master’s Degree in Business Administration can open doors to several high-paying positions. There is a downside however and that’s the amount you would have borrowed to cover your tuition fees. By the time you enter the workforce you’re likely to be dealing with substantial student debt. Refinancing MBA loans is one way to manage student debt. This allows you to save money, pay off your loans faster or lower your monthly payments to free up much-needed cash. Before you choose this path, there are a few things you should know about refinancing MBA loans.
Refinancing involves taking on a new loan to pay off your current loans. The terms and interest rates on the new loan are completely different from that of your old loans. When you refinance, you’ll have a new interest rate, new minimum monthly payment and new repayment term.
Most student borrowers refinance because their stronger financials qualify them for a lower interest rate. Even a marginal drop in the rate can lower the cost of the loan substantially.
Others may choose to refinance to reduce the loan term by increasing their monthly payments. This helps them to become debt-free faster, which can be a tremendous relief.
Still others refinance to lower their monthly payments because their income isn’t sufficient to cover the current payments. Refinancing with lower payments increases the cost of the loan over the loan term. However, it’s a better option than the alternative, which is missing a payment.
Refinancing is a good option for most borrowers but not for everyone. Whether it’s the right decision for you depends on your financial credentials as well as your long-term financial goals.
Here are a few reasons to consider refinancing MBA loans:
If you’ve focused on building your credit score after graduation, you have a good chance of qualifying for a lower interest rate. A lower rate means less interest will accrue on your debt, resulting in significant savings over the term of your loan. The exact amount you can save will depend on your current interest rate and the amount of debt you currently have. With a lower rate, you can pay off your loans earlier even with the same minimum payments. This is because more of your monthly payment goes towards paying off the principal instead of the accrued interest.
If you’re lucky enough to have landed a high-paying job soon after graduation, you should consider increasing your monthly payments. Paying more every month will automatically shorten the term of your loan and you’ll be debt-free faster. You cannot change the terms or the monthly payments of your original loan. The only way to increase your monthly payments is by refinancing your MBA loans.
If your income isn’t enough to meet your expenses, you may not be able to afford the monthly loan payments. Under these circumstances, you’re at high risk of missing payments or even defaulting on your loan. Unfortunately, these have severe consequences. Not only will your credit score get damaged but you will also have to pay a fine on the late payments. This will only push you further in debt. Refinancing with lower monthly payments can give you some breathing space in your budget. This will lengthen your loan term, and you’ll pay more in accrued interest over the longer term. But it will free up cash to help you pay your bills over the short term. It will also help you avoid the more serious repercussions of missed or delayed payments. As you finances improve, you can make extra payments to lower the interest charges.
Refinancing private student loans under any of the circumstances mentioned above is always a good idea. However, you may have to consider a few other factors before refinancing federal student loans.
Federal student loans come with certain federal benefits and protections but the federal government doesn’t offer refinancing. You can only refinance with a private lender. When you do this, your loans are no longer eligible for federal benefits and protections. If you are pursuing forgiveness, you must take time to compare the benefits of forgiveness vs. the benefits of refinancing. This will help you make an informed decision about which option will work better to help you meet your financial goals.
Start by comparing multiple online lenders. Interest rates, loan terms, and repayment options can vary considerably between lenders. You definitely don’t want to apply with the first lender you come across. Check each lender’s eligibility requirements and interest rates and create a shortlist of best-match lenders. When checking rates, don’t just shortlist lenders offering the lowest rates. Make sure to first check that they aren’t charging you any hidden fees. If you’re not sure, call or send them an email and ask if they have other charges that are not mentioned on their site.
Use an online refinance calculator to determine your personalized interest rate for each of the lenders on your shortlist. Once you’ve identified the best lender for your refinancing needs, gather the necessary documents and submit your loan application. Most lenders will ask you submit a government-issued identification, pay stub from the last 30 days and account information for making the payments. If you’re employed you’ll also have to submit a W-2 Form from the most recent tax year. If you’re self-employed you’ll need to submit your most recent tax returns.
It will take a few days after you’ve submitted your loan application and documents for your loan to be processed. Make sure you continue making payments as usual till the process is complete. If you stop payments prematurely, it will be considered a missed payment, which will cost you your credit standing as well as a penalty.
In general, refinancing private MBA loans is a good idea. If you have federal student loans however, it’s important to explore all your options before choosing this option.
We hoped you enjoyed this article! Remember, you canand potentially lower your monthly student loan payments and save money.