A couple years ago the federal government allowed for student loan refinancing – not just consolidation through the Dept of Education. I have consolidated my loans and wow I wish I had never done that, but last year I refinanced to a private lender and I have to say it was painless and pretty quick; I have saved money because my interest rate is less than the DoE’s normal student loan rate of 8.25%. In essence anything under that is savings so when I got a 4.25% rate that saves quite a bit of money which makes the principal go down since I did not decrease my payment any, so the amount owed drops every month rather than just going down by the small principal paid amount.
I know most people with a student loan will never pay if off, but for me that’s one thing I want to get out of and but quick. I have been paying on the loan with the regular monthly required amount but the interest was gobbling up a very large chunk of the payment. With the drop in interest rate, that $$$ that would have gone to interest now goes to principal. And with over a trillion dollars being owed for student loans, this is going to be the next BIG bubble to burst. Burst how… with the government holding the bag for so many loans, as baby boomers who have not paid off their loans or consolidated or even double-consolidated, the principal only gets bigger and BIGGER and BIGGER still with very little in sight of an end. But as more debtors pay smaller monthly payments the principal never gets taken care of and the interest accrues at a greater rate which annually (or even semi-annually) the accrues interest converts to principal – so the principal ever year gets larger and larger and the loan that should be paid off in 10-years quickly becomes 15 or 20 or longer.
But then comes the refinancing opportunity – get the loan out of the government’s hand and the default 8.25% rate and take advantage of lower interest rates. Problem will be as the rates are starting to increase it is possible the one day on the horizon the government’s rate might be cheater again – but that could be a ways off so I’m sticking with refinancing. I’ve already paid an advance $5K down in principal which I was never able to do in the DoE managed system.
Couple things to remember – all states do not allow all lenders to operate in them, but your state should allow something. If it does not, start lobbying, because saving money is not a partisan issue.
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