Financial experts warn that student-loan refinancing can be confusing and lead to financial problems down the road if you don't make the right decisions when applying for refinancing. To be sure, refinancing isn't for everyone. There are some obstacles to refinancing a student-loan debt, and it's not a straightforward process.
I spent time consulting with a variety of financial advisory experts. They offered some of their thoughts on the student-loan refinancing process.
It may seem obvious, but check with the bank to see if they refinance student loans from your school. Some banks will not lend to student-loan borrowers who have attended for-profit private institutions, community colleges or certificate programs.
It's important to understand the exact terms of the refinanced student loan. Banks can offer 5-, 10-, 15- and 20-year repayment options. Know what terms will work within your financial situation to repay your loan. Also, when does the repayment actually begin? What will the monthly payments be? What fees can occur if you miss a payment or default on your student loans?
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Your student loans have either variable or fixed interest rates. Do you understand the differences? By refinancing, you can convert a variable interest rate to a fixed-interest-rate loan or vice versa.
Check to see if there are any application, origination or disbursement fees. Some banks charge a student-loan origination fee up to 2 percent of the total amount being requested to refinance. The origination fee is usually added to the loan amount due, and you will not need to pay this amount up front.