Is Refinancing Your Student Loans Worth It?

In the past, high school graduates hoping to attend college could only do so if their parents could afford tuition – unless those graduates could purchase it themselves, which was highly unlikely. As such, only the relatively wealthy were able to attend college and ultimately earn a four-year degree or better. A few decades ago, the United States federal government decided to level the proverbial playing field so that less-fortunate secondary school graduates would have just as much of a chance to attend a traditional four-year institution of higher education.

How did the US government manage such a task? Through the National Defense Education Act of 1958, the very first program to link hopeful college students with loans, though only prospective college students seeking certain degrees – education, science, and engineering only – were extended such loans. Less than a decade later, the Higher Education Act of 1965 effectively granted high school graduates and non-traditional students alike the ability to pile on student loans.

Unfortunately, the average 2016 university graduate left with a degree bogged down by $37,172 in debt exclusively from student loans.

Refinancing loans is worthwhile in some situations, though certainly not all

People refinance lines of credit, mortgages, automobile loans, goods secured through private financing agreements, and student loan debts typically to reduce interest rates; the ultimate goal of refinancing debts is to reduce the total amount owed, subtract minimum monthly payments, or to shorten the number of periods remaining that require payments.

Here comes the important question – is refinancing your student loans worth it?

Young people are statistically more risky than their older, more mature counterparts. As such, late teenagers typically have terrible credit scores – if they even have borrowing history, at all – limited credit histories, and are slapped with high interest rates when they take out student loans.

College graduates who’ve established a credit history outside of student loans and improved their ratings are good candidates for refinancing. However, you should only refinance if the APR – annual percentage rate, or the true interest rate charged in a year’s time – is lower than the original loan.

Further, make sure the interest from the potential new loan of yours can be deducted from your tax return – read the fine print carefully and maybe even consider consulting a financial advisor.