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The student loan crisis in the United States has reached an all-time high. In 2018, more than 44 million people owed $1.5 trillion collectively, with the average student owing more than $37,000 in student loan debt. If you’re in this situation, refinancing your loans can be a wise choice to manage student debt repayment, lower interest charges, and make student debt more affordable.

Reducing payments or paying off more quickly

Before refinancing comes an important decision: is the primary purpose of refinancing to pay the debt down faster or lower monthly payments? A longer term will produce lower payments and this may be beneficial to borrowers with a high payoff amount, high living expenses, or low income. A shorter repayment term will pay down the debt faster, especially with a lower interest rate, although the payments will be higher.

Refinancing has the potential to shave thousands of dollars in interest charges over the term of the loan. While Direct PLUS loans have an interest rate of 7.6% as of February 2019, private student loans may have an interest rate as low as 4.2%.

Refinancing a $37,000 balance with a rate of 7.6% into a variable loan at 3.0% with a 10-year term reduces monthly payments by $84 and saves an estimated $10,065 in interest. If the term is increased from 10 to 20 years, payments are dropped by $236 per month.

Refinancing from a federal to a private

Borrowers who have a federal student loan should carefully consider the decision to refinance. Refinancing a federal loan into a private loan is irreversible. Once this step is done, the borrower loses access to the protections offered to federal borrowers, including federal student loan forgiveness options, forbearance, deferment, and alternative repayment plans based on income.

Qualifying for student loan refinancing

Student loan refinance options are offered through banks, credit unions, and even peer-to-peer networks. Every lender has its own qualification for refinancing but, as a general rule, a borrower must have good to excellent credit and steady income with the ability to repay the loan. Debt-to-income is also considered. Most lenders require a debt-to-income ratio of no more than 43 percent. Many lenders also allow borrowers to refinance student loans with a cosigner who meets these lending standards. A cosigner can make it easier to get approved for a refinance loan for borrowers who do not otherwise qualify.