Student Loan Debt Refinancing Explained

student loan refinancing has become really popular so let's go over what

exactly it does and if it's right for you hey guys it's Justine with debt-free

Millennials the channel to help you crush debt and live a debt-free life

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stick around and subscribe I actually got this dad just spit on myself I think

I did hey I got this question from Amy Tran on YouTube and she writes please

talk about student debt refinancing I wish I knew more before taking out

student loans but it would be so helpful if you could talk about it Amy thanks so

much for your question I feel like a lot of graduates get kind of stuck where

they're like I have private loans and I have federal loans and this interest

rate and I don't know what to do trust me I was there because I had a loan with

Sallie Mae I had a shit ton of federal loans

I had a loan through the university even so it's like where do you even begin

when it comes to maybe considering refinancing first things first I want to

break down the difference between student loan refinancing and student

loan debt consolidation there is a difference so if you've heard of the

term student loan consolidation that only happens at the federal level so

with student loan consolidation you can consolidate all of your federal loans

and let's say you have multiple I myself had like 10 federal loans so it would be

combining all of those loans into one consolidated federal loan and then you'd

have one interest rate in one payment instead of multiple loans with multiple

interest rates make sense now student loan refinancing is different in that

you can combine federal loans and private loans lump them together into

one new loan the refinancing loan you would have one interest rate one

predictable monthly payment and you'd have one student loan lender that you

are working with that's the biggest difference between consolidation and

refinancing so just to clarify those terms okay so you can't refinance your

loans through the federal government program but you can refinance your loans

through a private lender there are a ton out there I can't believe how many

commercials are out there for student loan refinancing right now but the big

thing that you want to consider if you think you might be a candidate for

student loan refinancing let's go over this student loan refinancing could be

good if you have good credit it's good for those that receive a consistent

monthly income those that have federal and private student loans and a lot of

it and those who want one monthly payment towards one loan instead of

multiple now student loan refinancing is not really a good option for those who

want to use the public service loan forgiveness program I can cover that in

another video if you're not familiar with it and it's not good for those who

have a poor credit or those who have unpredictable income or those who have

loans with already low interest rates so the whole reason that you would want to

combine and refinance your student loans is if you have a high interest rate on

those student loans and you're wanting to lower the amount of interest that you

pay we all want to pay less in interest so that we don't ever have to pay

interest again now what's interesting here is I checked the current interest

rates for federal student loans and direct unsubsidized and subsidized loans

for undergraduates is currently at four point five three percent direct

unsubsidized loans for graduates is six point zero eight percent and then the

PLUS loans is at seven point zero eight percent so to give you an idea of how

this compares to roughly ten years ago when I was

in college I took out federal unsubsidized loans and subsidized loans

between 2007 and 2011 and then interest rate for the unsubsidized loans as an

undergraduate was 6.8% and the subsidized loans were at four

and a half percent so the direct unsubsidized loans now has decreased

from the time that I was in school to where it is now it's dropped a couple

percentage points so you could have student loans that are as high as nine

to thirteen percent and maybe you're looking to refinance and get that

percentage rate down to maybe like a 6% but here's the thing let's take a look

at an example suppose you have a hundred thousand dollars in student loan debt

and your current interest rate is 10 percent whoa okay so that means you're

paying ten thousand dollars in interest on that student loan debt on top of

paying back your principal I mean that's that's pretty crazy right so let's say

you check out a refinancing lender who's offering to pay you a seven percent

interest rate so instead of 10 percent you'd pay seven percent so that's three

percentage points less than what you'd be paying so you'd be paying what seven

thousand dollars in interest per year so you're saving yourself three thousand

dollars but here's the thing three thousand dollars does not solve a

hundred thousand dollar problem you still have to come up with a debt free

plan you still have to make it a point to pay it off as quickly as possible by

putting extra payments towards your debt yeah if I saw three thousand dollars on

the ground heck yeah I'm picking it up and so you could move the needle like

this much by refinancing but know that refinancing is not the secret to getting

out of debt it's not the end-all to your debt free journey you still have a lot

of headway to go and if you work the steps of getting out of debt saving and

budgeting actually four steps to my debt free planets in my

online course of freedom project and that is having a money mindset saving

for emergencies budgeting every single month and then picking a method to

paying off debt I'll link to that in my description below but if you're working

that plan just like I did then you can pay off your student loan debt without

having to refinance I personally did not refinance I can see how in some

situations like the example that I pointed out that you may consider

refinancing and that's fine and all you can do that and also you have to take

these other steps so that student loan refinancing in a nutshell

it works for some people in other cases it's just like roll up your sleeves and

get to work and start paying down the debt otherwise I think there are some

situations that you could use refinancing but remember to work your

debt free plan first and you are good and you give Jay