Most law students graduate with as much as six figures in federal and private student loans. That’s a lot of debt to pay off. Refinancing is one way to take control of your law loans and even pay them off faster.
Refinancing involves taking on a new loan to pay off your existing loans. The new loan will have its own interest rate and repayment schedule. The main benefit of refinancing is that it allows you to set new loan terms to suit your current financial circumstances.
For example, if you’re earning a high income, you can choose to refinance with higher monthly payments. This will reduce your loan term so you can be debt-free earlier. Also, less interest gets accrued over the shorter loan period, saving you hundreds of dollars in interest.
On the other hand, your monthly earnings may be low and you may be struggling to pay the current monthly payments. In this case, you can choose to refinance with lower monthly payments. This will extend the life of the loan and also increase the amount of interest that accrues over a longer period. Your loan will end up costing you more if you lower your monthly payments. But, it does help free up much-needed cash for the moment. This is far better than defaulting on your law loans.
If you’re like most law students, you most likely have a mix of federal and private student loans. Both of these have completely different interest rates, payment terms, and associated benefits. Before you choose to refinance your federal or private law loans, it helps to understand the pros and cons.
Federal law loans come with a fixed rate of interest for all students. The federal government sets the rate for the year based on market conditions. Even if the rate drops during subsequent years, you still continue paying the original higher rate. Refinancing is one way to get a lower interest rate on your loan. This lower interest could save you thousands of dollars over the life of the loan.
Another benefit of refinancing it can help you change the terms of the loan to make it more manageable for you. You can pay off your debt earlier if you can afford to increase your monthly payments. Alternatively, you can lower the monthly payments to cover other necessary expenses.
The one big disadvantage of refinancing federal law loans is they get converted to private loans when you refinance. The newly refinanced loans won’t have any of the protections associated with the original federal loans. You won’t have access to income-based repayment terms, deferment and forbearance options, or forgiveness. You should only consider refinancing federal law loans if you aren’t interested in any of these protections.
Private law loans do not have any protections, and as such there are no downsides to refinancing. Refinancing private law loans makes sense if you qualify for a lower interest rate or when you need to change the terms of your loan.
Refinancing is not the best solution for all borrowers. It depends on the type of loans you have and a few other factors. Refinance law loans may be right for you under the following circumstances:
The first thing to do is to compare lenders and offers online. There are several lenders that offer refinancing. You’ll find that different lenders offer different rates and loan terms. Even the eligibility requirements may differ from one lender to another.
A good way to start is by checking the eligibility requirements. Only shortlist those lenders whose requirements you meet.
The next step is to check each lender’s refinancing rate and terms. Keep in mind that most lenders publish the lowest possible rates on their sites. This is not necessarily the rate you will pay. Your rate will depend on your financial circumstances, including your credit score, income, and debt-to-income ratio. The best way to compare your personalized rate with different lenders is by using an online refinance calculator. This will allow you to calculate your rate without triggering a hard credit check.
Once you’ve zeroed in on the best lender for you, you’ll need to submit your application along with the required documentation to refinance your law loans.
We hoped you enjoyed this article! Remember, you can compare your personalized rates with our lending partners and potentially lower your monthly student loan payments and save money.