A lot of students today dream of an overseas education because of the opportunities that it offers and the exposure that comes with it. The study abroad option can be expensive especially due to the various travel and accommodation expenses along with the examination fees. And so, most of us finance our overseas education by taking an education loan. As per data provided by the Ministry of Finance, over 4.60 lakh students availed of education loans in the past 10 years to study abroad.
Though the number of students taking education loans is increasing, paying back an education loan with higher interest rates is becoming more and more difficult. This is where ‘education loan refinancing’ comes into the picture. In this blog, we are going to understand what ‘education loan refinancing’ is and how it is becoming a convenient way of paying back education loans.
Table of contents
Meaning of Education Loan Refinancing
Education loan refinancing is the process of consolidating different student loans into one single loan. Under it, individuals can switch to another lender to help them pay off their existing student debts. The new interest rate that you get during refinancing might even be lower than the ones before. The reason why people choose this option is to secure lower interest rates, lower monthly payments, and other more favourable conditions.
Also Read: Credit Scores and Their Impact on Education Loan Refinancing: Know the Details Here
Advantages & Disadvantages of Education Loan Refinancing
There are certain advantages and disadvantages of refinancing education loans that you should know before you opt for this option. Here is a list of the same:
| Advantages of Education Loan Refinancing | Disadvantages of Education Loan Refinancing |
| Improved lower interest rates | You need a strong credit score to qualify for refinancing |
| Becomes easier to manage a single loan than multiple loans | Benefits existing under previous loans may be lost |
| The total payment may be reduced | You may need to have a co-signer |
| Reduction in monthly payments | Lower monthly payments may lengthen your timeline for paying off the loan |
Eligibility Requirements For Education Loan Refinancing
Though the eligibility requirements vary from lender to lender, there are a few minimum eligibility requirements that must be met for you to qualify for an education loan refinancing. Below is the list of the same:
- Credit score: Probably one of the most important things that determines eligibility for education loan refinancing is the credit score. If your credit score is high then your chances of securing a lower interest rate increase. A credit score of 650 and above is generally considered a good credit score.
- Employment: Having a job while applying for a refinancing of loan can help you get approved as many lenders look for a consistent source of income in applicants. If you have a job it gives an assurance to the lender that you will be able to pay off the loan on time and will not default on your monthly payments.
- A lower debt-to-income ratio: A debt-to-income ratio indicates the level of debt you have. If you keep your debt-to-income ratio under 50%, your chances of getting the loan refinanced will increase.
Also Read: The Importance of Having and Maintaining a Good Credit Score and Rating
Should You Opt for Refinancing?
While there are many benefits of education loan refinancing, you should always assess the pros and cons before making a final decision. There are certain benefits that you might have under your existing loan like loan forgiveness option and income-driven repayment option. Federal student loans provide certain benefits and before you refinance them, you should understand the terms and conditions that will change during the refinance process.
FAQs
There are many advantages of refinancing student loans like reduced monthly payments, improved interest rates, getting more time to pay off the complete loan, etc. Because of these advantages, many people opt for refinancing.
Education loan refinancing means consolidating different existing loans into a single one. This gives the advantage of managing only a single loan and interest rate. There are other advantages also for instance, if you have a good credit score and a steady source of income, you can ask lenders for lower interest rates and other favourable terms.
There are certain things that you should keep in mind before opting for refinancing like having a lower debt-to-income ratio and having a good credit score along with a steady income. These factors will strengthen your chances of getting a favourable interest rate during the refinancing of your loan.
Refinancing education loans has many advantages like a reduction in monthly payments and lower interest rates. All of this helps in maintaining a favourable monthly budget while still making timely payments. However, the terms available under existing loans tend to change when you opt for loan refinancing. Hence, you should do thorough research before going for this option.
To know more about education loan refinancing, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience.
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| How to Refinance Student Loans & When Should You Consider It? |
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